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Operator: Good afternoon. Thank you for attending Nerdy, Inc. Q3 2025 Earnings Call. My name is Makayia, and I will be your moderator for today's call. [Operator Instructions] I would now like to pass the conference over to your host, TJ Lynn, Associate General Counsel of Nerdy. You may proceed. T. Lynn: Good afternoon, and thank you for joining us for Nerdy's Third Quarter 2025 Earnings Call. With me are Chuck Cohn, Founder, Chairman and Chief Executive Officer of Nerdy; and Jason Pello, Chief Financial Officer. Before I turn the call over to Chuck, I'll remind everyone that this discussion will contain forward-looking statements, including, but not limited to, expectations with respect to Nerdy's future financial and operating results, strategy, opportunities, plans and outlook. These forward-looking statements involve significant risks and uncertainties that could cause actual results to differ materially from expected results. Any forward-looking statements are made as of today's date, and Nerdy does not undertake or accept any obligation to publicly release any updates or revisions to any forward-looking statements to reflect any change in expectations or any change in events, conditions or circumstances on which any such statement is based. Please refer to the disclaimers in today's shareholder letter announcing Nerdy's third quarter results and the company's filings with the SEC for a discussion of the risks. Not all of the financial measures that we will discuss today are prepared in accordance with GAAP. Please refer to today's shareholder letter for reconciliations of these non-GAAP measures. With that, let me turn the call over to Chuck. Charles Cohn: Thanks, TJ, and thank you to everyone for joining today's call. As we close out the third quarter of 2025, I want to start by acknowledging some challenges we faced this back-to-school season. Our starting point heading into the fourth quarter was behind where we are targeting with delays in key product launches delaying our anticipated inflection in growth and profitability by a quarter. These setbacks, including some operational challenges, stem from the growing strain on our underlying systems, which were built over years to support an expanding array of products from live scheduled video tutoring to instant on-demand video tutoring to AI tools to diagnostics and more, and they span both our Consumer and Institutional offerings. As we've scaled the sprawl of these systems created technical debt that slowed our product velocity, leading to slower time lines and launches, this new school year, several key initiatives were impacted as product launches were delayed, which culminated in us not fully capitalizing on back-to-school peak. These disparate technology systems led to a disconnected experience across product modalities, including tutoring, livestream classes, AI tools and our practice and self-study tools, each in a different user interface. This slowdown year-to-date and product delays in the back-to-school period in particular, prompted a period of deep introspection for me. This summer, we started a few new vendor relationships with early-stage enterprise software start-ups. Their ability to build net new features, almost entire products in a week or two was 10x faster than what I had ever witnessed before. With brand-new code bases defaulting to AI coding versus just AI-assisted coding and no preconceived notions of what was possible or how to build software, they were able to build at 10x the pace of what we've seen before. That experience inspired me to rethink every aspect of how we build products and software. I dove into these root technical issues myself, working closely with a small group to rethink our platform for the ground up in this AI native era. In effect, it required replatforming my own skill set and learning to build software natively with AI and it represented a transition from being a nontechnical founder to a technical founder made possible with and thanks to extensive AI augmentation. Our platform is now undergoing the same replatforming and metamorphosis. What I realized is that to truly harness AI's potential, enhancing every aspect of live human tutoring, we needed to shed legacy constraints entirely. I've personally led a small group that worked day and night to rebuild key aspects of our core infrastructure from scratch using AI-assisted software development and preserving essential business logic and data while migrating to modern decoupled systems. As we proved out this new way of working and building, we enlisted our entire product and engineering org and have made significant progress. We are now targeting having nearly 100% of our traffic on new code bases written by AI by the end of November. What's really exciting is that it's already unlocking customer-facing innovation at a pace we've never seen before. And by the end of the year, we anticipate our back-end legacy systems will be fully decoupled, allowing us to integrate AI much more deeply across the platform and launch new interactive context-aware experiences with a fraction of the effort. This reinvention isn't abstract. It's already delivering tangible progress. For instance, our 2.0 version of our flagship Live Learning Platform video tutoring product launched with a rollout from September to October, achieving a reduction of approximately 50% in audio/video error rates and nearly 40% cost savings per session, along with very positive tutor feedback and very positive student feedback on usability and quality. We're also rolling out brand-new completely rethought new student and tutor experiences with October launches of entirely new and unified experiences that bring together all of our products into a cohesive interface. Products like our new AI Practice Hub featured in our last shareholder letter are now fully integrated into both the student experience and our new Live Learning Platform. This enables content and AI tools to enhance the entire customer journey and fully leverages the personalization and enhancements that AI now makes possible. Other AI-driven wins include better site conversion on our new homepage as well as a significant drop in the tutor replacement rate via new AI vetting of tutors with interactive conversational AI interviews that have automated 80% of the tutor application review. That has boosted new tutor quality and the quality of matches, which we believe will lead to meaningful retention improvements. We're collapsing disparate experiences into a unified cohesive platform that supports discovery across multiple subjects, multiple modalities and multiple academic years. For example, our new learner experience not only integrates Practice Hub directly into the core experience, but it also makes it easier to discover and enroll in live classes as well as find and use diagnostics and other self-study tools. We've seen early indicators that this drives higher engagement. Historically, when users adopt multi-subject or multimodality learning, retention improves meaningfully. Since launch, we've seen more than 50% growth in the consumption of self-study tools and content with emerging positive trends on repeat user engagement. With the new multi-format, multi-subject integrated experience, we believe we can extend the retention improvements that we're currently seeing in the first month for new customers, which are up meaningfully year-over-year into later stages of the customer life cycle. In the fourth quarter, our focus will extend beyond the first month activation and onboarding and we'll focus extensively on new product and new subject discovery for customers. As one small example of an improvement that's easy now that was hard in the past, we look forward to launching our first version of gamification, which we believe could take user delight to a whole new level. Our Live+ AI approach remains central to how we are enhancing the overall experience. That's where human tutors augmented by AI create an offering and drive outcomes that neither could achieve alone. This was underscored by a recent Carnegie Mellon study that showed human tutoring augmented by AI drove a much higher level of student outcomes than AI alone or humans alone. That reality is a key reason why the idea of AI-enhanced human tutoring was elevated to the highest levels of education policy, and it's been exciting to see the AI education effort kick off in September and a White House event I was fortunate to attend. Our multiyear partnership with Carnegie Mellon's Metals Applied Learning Sciences program has been transformative, yielding cutting-edge research and AI innovation that is now poised to redefine online tutoring. By applying advanced discourse analysis, large language models and other AI techniques to session transcripts and video feeds, we've uncovered key insights into effective tutoring dynamics that demonstrate the clear advantages of one-on-one interactions over traditional methods. It's also allowed for us to identify actionable strategies to enhance session quality and mitigate issues like inconsistent human performance. We're now operationalizing these findings to optimize experiences before, during and after tutoring sessions. We're delivering tailored insights to students and tutors post session and pairing the insights we surfaced with automated actions like agentic practice problems and more that enhance the overall experience for users on the platform. We anticipate these enhancements will drive substantial gains and retention over the coming months and years. To execute this vision and improve our overall execution, we've strengthened our operational leadership. In August, we appointed a new Chief Operating Officer with proven experience scaling operations and marketplaces and concurrently hired 13 director and senior director level operational leaders across key functions in the company. This is centralized control, up-leveled our talent across all operational leadership roles at the top several layers of the company and accelerated process improvements from software-driven efficiencies to better demand forecasting. As one such example, AI and sales is playing a key role here with real-time heads-up displays, agent prompting and call scoring having lifted conversion by more than 10%. These improvements have the potential to decrease overall sales and customer acquisition costs in the near future. On the Institutional side, our efforts to align our products with established intervention frameworks that schools rely upon like MTSS and RTI is resonating. Our new end-to-end Varsity Tutors for Schools experience launches towards the end of the quarter and will better align to how schools operate, make it easier for school leaders to prescribe interventions and act upon data and ultimately be a more sellable product for district-wide sales. In the third quarter, we continued our path to profitability, delivering 960 basis points improvement in non-GAAP adjusted EBITDA margin year-over-year, driven by improved operating efficiency and cost reductions across every P&L line item. AI-enabled productivity improvements, coupled with new software-driven processes are substantially improving our operations and are allowing us to do more with less. For example, our headcount was down by approximately 27% year-over-year as compared to the third quarter of last year. Recent advancements in our application of AI that are made possible by a new and more flexible platform provide us the opportunity to move faster and drive further levels of productivity and operating leverage while improving the customer experience as we continue to scale our business. Thank you for your continued support. We look forward to showing you in the quarters ahead what we'll be able to do with a new modern tech stack, and evolved approach to product development and liberated from tech debt. With that, I'll turn the call over to Jason to discuss the financials in more detail. Jason? Jason Pello: Thanks, Chuck, and good afternoon, everyone. Third quarter revenue was in line with expectations, delivering revenue of $37 million within our guidance range of $37 million to $40 million, which represented a decrease of 1% year-over-year from $37.5 million during the same period in 2024. And more importantly, a 1,000 basis point improvement in growth rates sequentially on a year-over-year basis versus the second quarter, putting us on a path to return to growth in the near term. Revenue decreased slightly when compared to the prior year period due to lower Institutional revenue, partially offset by higher Consumer revenue. Within Consumer revenue, Learning membership revenue increased 5% year-over-year. This was partially offset by a specific state-funded Consumer revenue program of $900,000 in Q3 2024 that did not recur in 2025. The current year period was positively impacted by higher ARPM in our Consumer business as a result of the mix shift to higher frequency Learning Memberships and price increases enacted during the first quarter of 2025. These changes are coupled with higher retention in newer cohorts due primarily to improvements in the user experience and new Expert incentives. Revenue recognized in the third quarter from Learning Memberships was $33 million and represented 89% of total company revenue. As of September 30, ARPM was $374, which represented a 24% increase year-over-year, and there were 34.3 thousand Active Members. Our Active Member count as of September 30 was lower when compared to the prior year and our expectations for this back-to-school season. This was primarily due to operational challenges that we're actively addressing in part through the appointment of a new COO to drive enhanced operational execution and systematic process improvements. We are also rolling out new student and tutor platform user experiences to all users in the fourth quarter that we believe will reaccelerate growth. Our Institutional business delivered revenue of $3.7 million and represented 10% of total company revenue during the third quarter. Varsity Tutors for Schools executed 44 contracts, yielding quarterly bookings of $6.8 million, which represented a decrease of 20% year-over-year. In our Institutional business, revenues and bookings continue to be impacted by federal and state funding delays and the related impact to high-dosage tutoring contracting and program start dates. We believe the combination of our Live+ AI capabilities and our high-dosage tutoring offerings are unique in today's K-12 market. And when our new end-to-end Varsity Tutors for Schools experience launches toward the end of the quarter on a new code base, we will be able to offset any funding uncertainty and return to growth. For the second consecutive quarter, gross margin improved sequentially quarter-over-quarter as margins increased approximately 140 basis points when compared to the second quarter of 2025. This gross margin expansion was primarily a result of price increases for new Consumer customers enacted during the first quarter of 2025. As mentioned on our prior two earnings calls, the year-over-year decreases in gross margin were primarily due to investments in our partnerships with Experts through pay and incentives. Following the adoption of these incentives, we continue to see faster time to the first session, more sessions in the first 30 days, lower tutor replacement rates and higher retention, all of which should continue to strengthen our business over the long term. We expect sequential quarterly gross margin improvement to continue into the fourth quarter of 2025 as the mix of our Consumer revenues continue to shift into higher frequency and higher-priced Learning Memberships. And as we are able to better optimize tutoring incentives now made possible due to improvements in the new tutor experience platform. Sales and marketing expenses for the quarter on a GAAP basis were $16.6 million, a decrease of $3.7 million from $20.3 million in the same period last year. These decreases in sales and marketing expenses were driven by Consumer marketing efficiency gains, coupled with the moderation of our investment in Institutional business given near-term funding uncertainties. General and administrative expenses for the quarter on a GAAP basis were $25.8 million, a decrease of $6 million from $31.8 million in the same period last year. Included in G&A costs were product and development costs of $10.3 million. AI-enabled productivity improvements, coupled with new software-driven processes and systems implementations, headcount reductions and other cost reduction efforts have enabled us to generate operating efficiencies and remove significant costs from the business. Recent advances in our application of AI across the entire tech stack provide us with the opportunity to move faster and drive further levels of productivity and operating leverage while improving both the customer experience and operational consistency as we scale our business. In the third quarter, we delivered a 960 basis point improvement in non-GAAP adjusted EBITDA margin year-over-year, driven by improved operating efficiency and cost reductions across every P&L line item. Non-GAAP adjusted EBITDA loss of $10.2 million for the three months ended September 30 beat our guidance of negative $11 million to negative $13 million and compared to a non-GAAP adjusted EBITDA loss of $14 million in the prior year period. Our third quarter performance reinforces our confidence in the near-term path to profitability. AI-enabled productivity improvements, coupled with new software-driven processes and systems are substantially improving our operations and allowing us to reduce headcount, which was down by approximately 27% year-over-year at the end of the third quarter. We believe these results, coupled with continued improvements enacted in the fourth quarter, keep us on the path to profitability on a non-GAAP adjusted EBITDA basis in the near term. Moving to liquidity and capital resources. As of September 30, the company's principal sources of liquidity were cash and cash equivalents of $32.7 million. Today, we are announcing that on November 3, we entered into a loan agreement that provides for a term loan in an aggregate principal amount of up to $50 million, which enhances our financial flexibility as we work to become profitable on a non-GAAP adjusted EBITDA basis in the near term while avoiding equity dilution. On November 3, we borrowed $20 million under the term loan. The proceeds will be used for working capital and other general corporate purposes. With our cash on hand and the funding available under the term loan, we believe we have ample liquidity to fund the business and pursue growth initiatives. Turning to our business outlook. Today, we are introducing fourth quarter guidance and updating full year guidance. Fourth quarter revenue guidance reflects higher sequential quarterly revenues in both our Consumer and Institutional businesses when K-12 schools and universities are in session. For the fourth quarter and full year, we expect Consumer revenue will be impacted by the decline in the number of Active Members. This will be partially offset by year-over-year improvements in ARPM due to the mix shift to higher frequency Learning Memberships, coupled with price increases and retention due to improvements to the user experience and investments in tutor pay and incentives. In our Institutional business, revenues are impacted by federal and state funding delays and the related impact to high-dosage tutoring contracting and program start dates. For the fourth quarter of 2025, we expect revenue in the range of $45 million to $47 million. For the full year, we expect revenue in the range of $175 million to $177 million. Turning to adjusted EBITDA guidance. For the fourth quarter and full year, adjusted EBITDA improvements year-over-year reflect Consumer and Institutional marketing efficiency improvements, coupled with the benefits from AI-enabled productivity and operating leverage improvements and diligent G&A cost control. Offsetting these improvements are investments in Expert pay rates and incentives, which are leading to higher engagement and retention. For the fourth quarter of 2025, we expect non-GAAP adjusted EBITDA loss in the range of $2 million to breakeven. For the full year, we expect a non-GAAP adjusted EBITDA loss in the range of $19 million to $21 million. We expect to end the year with $45 million to $48 million in cash, inclusive of the $20 million funded under the new term loan, which we believe provides us with ample liquidity. In closing, thank you again for your time and for your continued interest in our company. With that, I'll turn it over to the operator for Q&A. Operator? Operator: [Operator Instructions] At this time, I would like to pass the call over to our first questioner, Ross Sandler with Barclays. Ross Sandler: Chuck, the new management structure with the COO and 13 new team leads, how is that going to impact the kind of speed of execution for the company? And how are you guys dividing the responsibilities? And then second question is, with the new tech stack, you're obviously going to see faster product velocity. How do you expect that to impact like the KPIs of the business? Do we expect to see kind of faster member growth or better retention next year? Any color on how you're thinking about benefits from the tech stack? Charles Cohn: Thanks, Ross. Yes. So we're very excited about John joining us as our Chief Operating Officer, and he spent a decade at Amazon and has deep experience scaling complicated marketplace businesses and implementing product and technology in such a way as to drive significant operational improvements. And we're going to be kind of collapsing layers of structure, product engineering ops, all roll into him. We generally -- I think centralizing control, having more simplified operating structures allows for us to make sure that the intersection of our investments in product engineering, how those ultimately pull through into operations are much more closely linked. I think that's something that we're excited about. But importantly, like we have made tremendous progress over the course of the quarter, like tremendous progress. And so over the course of, call it, 12 years, significant technology debt built up that eventually just slowed the rate at which we could test and launch new experiences. And what you can see and what is visualized both on our website and you can see for yourself also in the shareholder letter is a dramatic increase in product velocity and innovation. And so we're super, super excited about how much faster we're going to be able to launch new products that are much more deeply integrated, much more unified and ultimately better for the customer. And that's something that we're -- I think you will see starting to engagement metrics. We're going to be able to increase the velocity of testing on the external website after going many years with very little changing on our external public-facing website. You can now see the velocity in which we're launching new homepages, the new tutor galleries, the new practice hub type experiences. And so you should expect to see that continue. That wasn't possible until quite recently. It sort of got to a point, I think, in the quarter where there were multiple initiatives that sort of sold out longer-than-expected ride at school launch, which was a bummer, but it also forced us to really rethink the entire experience. And now thanks to a few breakthroughs, we're to the point where our teams are moving at a dramatically faster pace than was the case before. And I think that will impact both engagement metrics, but also positively impact revenue and also allow us to remove costs faster. Jason Pello: Ross, this is Jason. The only thing I'd add is with the new in-line experience significantly reduces friction, enhances discoverability, and we would expect improvements to multimodality for students using multiple learning opportunities across the site, multi-subject and multi-student within the same families, coupled with higher retention as these features roll out to the entire customer base in the fourth quarter. Operator: The next question comes from the line of Jason Tilchen with Canaccord Energy. Jason Tilchen: Wondering, in the prepared remarks you mentioned the product delays pushing out the sort of growth inflection by a quarter. You also mentioned that some of these issues caused you to miss the back-to-school season. I was just hoping you could maybe talk a little bit to the timing dynamic here and so I can better understand sort of what's giving you confidence that there won't be sort of a continued drag from missing that peak period as we move throughout the school year. Charles Cohn: So the first thing should be that we've launched entirely new experiences across almost the entire website at this point. So by the end of the month, we're targeting nearly 100% of traffic will be on brand-new code bases, and you will be able to see that for yourself. So it will be our beautiful, what we're calling Luminex design style that kind of permeates the site, unifies the theme, and that is all on a modern react code base. And so that alone, frankly, has already accelerated our innovation capacity pretty significantly, separating it from many of our historical systems. Separately, though, we're just seeing sequential improvements in a bunch of different underlying metrics, including MRR growth. So some of those relate to product velocity, some of those relate to simplifying systems and centralizing how we're operating. But I think we're feeling positive about all of the trends as we sort of get deeper and deeper into the school year. Jason Tilchen: Great. That's really helpful. And then I was hoping maybe you could also just talk a little bit about some of the underlying issues of some of the funding delays, if it's purely related to sort of the government shutdown or it seems like given the timing, there's probably some other factors going on there. And then maybe also if you could share a little bit more about some of the benefits that you expect to be derived from the new end-to-end Varstity Tutors for Schools experience. Jason Pello: Yes. I'd say on Varsity Tutors for Schools, it's kind of what you're seeing in the market, just delays funding from federal and state levels to school districts is impacting the timing of bookings and then that on a downstream basis impacting the timing of program start launches. We still remain confident in our product, long-term potential of the market, the level of spend within Varsity Tutors for Schools in the Institutional business we believe supports durable and profitable growth. And then maybe just if you take a step back, the breadth of our Live+ AI offering, high-dosage tutoring and all of our AI-enabled teacher and administrative tools is pretty much unmatched in the market from our perspective. And as district leaders look to optimize learning outcomes, again, they all align with the MTSS framework and better support teachers. The strategic shift in schools toward embracing AI as a learning tool is happening. There's as an efficiency asset that's underway as school districts develop guidance on AI for high-quality learning materials, tutoring and classroom instructions. And then the last thing I'd say is students based on the latest NAEP scores, which were released in September, are still way behind. And so all of those 3 factors together give us a pretty significant opportunity to continue to grow that business. Charles Cohn: The other thing I'd mention is there's an incredible insight since we first launched this business a few years ago. And there was certainly more complexity than we imagined, and we worked through a lot of that. But there were many, many different insights that we've loved to have acted upon and integrated into the product more deeply, but just couldn't due to resourcing constraints. And what's really exciting about this kind of new unified experience and modernized code base is we can now much more deeply integrate everything together in such a way where it's really actionable and really useful for schools. And so the holy grail in edtech is to have a proactive intervention platform where you can get the insights of which students are at risk and then can actually act upon those insights and take action. And that's what we're going to be able to bring to bear. And so we have the different forms of intervention with high-dosage tutoring and human chat tutoring and AI tutoring and different forms of live classes for academic support enrichment and test prep and diagnostics but to actually be able to thread them together in a way consistent with schools and how they work, which we have done in high-dosage tutoring, but had not done with all of these ancillary forms of intervention, that's what we're going to be able to unify and that's what will allow for us to have a much, much broader impact in the quarters ahead. And so we'll make great progress there, and we'll finish all that work and ship it in the coming weeks, but we're excited about just how much better it is than I think we ever kind of envisioned. Operator: The next question comes from the line of Yi Fu Lee with Cantor Fitzgerald. Yi Lee: I guess circling back in the new flagship Live Learning Platform, like you guys mentioned a couple of KPIs, 50% less audio/video errors, 40% cost saving per sessions and 50% growth in consumption. So I guess my question, Chuck, to you and Jason is how will this translate into revenue growth in the future and better cost savings? We just want to see from an investor standpoint, the ROI of this investment. We understand you're going to finish the code base by the end of this month. So just want to get the timing of the ROI. Charles Cohn: Sure. So as we move over volume, you're going to see -- and we are seeing the cost of any given session, which is some marginal costs associated with it, progressively drop. The bigger immediate win that is already occurring as folks move over is that it's just more reliable. And like with any product or service, the more reliable you can make the platform, particularly like an audio-video-based platform, the better it is for ultimately customer retention. And so that alone is a big win. And then importantly, this already integrates with hundreds of subjects worth of content and tools, hundreds and hundreds and hundreds of thousands of practice problems and diagnostic tests and flash cards and you're able to drive just a way more delightful experience. So if your 6-year-old daughter wants to turn the Live Learning Platform pink or green or purple, you can do that, which is exactly what mine did the second she got access to it. And so it's going to be an incredibly interactive experience. We can build new functionality that, frankly, was just completely like out of the realm of possibility. And you're going to find just a much more interactive experience. So relating it back to your question, the cost of operating the platform already is going down significantly. And then separately, our ability to reduce customer service costs will also go down because we can fully integrate in-line experiences in the actual platform itself such that nobody needs to call, in addition to the fact that it's so much more reliable. And then lastly, I would expect that the biggest win of all is actually on the retention side because it will be so much more reliable. Yi Lee: Got it. And then follow-up is, okay, appointment of the COO, John and the 13 or 14 senior executives, Chuck. So I just want to get a sense of like the first 100-day plan that you have with them. I understand that in the Consumer side, you're driving better ARPU but however, the Active Members gone down. What is the game plan to, I guess, increase those metrics? Charles Cohn: Sure. So it's all about product velocity and collapsing decision-making. And I think what we're broadly already seeing is that we are solving problems that historically were hard to solve. That is certainly aided by the fact that we're getting to net new code bases, but we are, in fact, making that leap. And in doing so, we are able to then drive a whole host of different improvements to the funnel that historically might have otherwise been harder. So we're just progressively improving the kind of predictability of the performance, rooting out inefficiency and improving reliability. And so there's a whole host of different functional specific ways that we are going about doing that, but they ultimately ladder up to a more reliable, efficient and then eventually from a sequencing perspective, delightful operation. And I think we're making good progress across all 3 fronts. Jason Pello: Yes. The only thing I'd add that in the third quarter, we delivered… I was just going to add that in the third quarter, the new team helped us deliver a nearly 1,000 basis point improvement year-over-year in adjusted EBITDA margin by improving the operational efficiency and cost reductions across nearly every single P&L line item. These cost- set initiatives are ahead of targets, they're ahead of schedule. We believe all these recent advances in AI provide us and the team with the opportunity to drive further levels of productivity as we continue to scale. And the enhanced operational execution that this team is bringing to the table, all the systematic process improvements, those provide us the confidence in the near-term path to profitability, which we think is key. Yi Lee: That's exactly my follow-up question, Jason, to you on the financial side is, obviously, you guys have the term loan, $50 million during 2020 already, but it is high yield in nature. Just want to get your take. I understand you drove almost 1,000 points of improvements in EBITDA. I'm not looking to guide in 2026 yet, right, because we haven't even finished this year, right? How confident are you with the new liquidity in place that we're going to reach free cash flow EBITDA breakeven going forward? Like when will that be on a consistent basis? So that's it for me. Jason Pello: Yes. Good question. So look, the term loan with that and the cash on the balance sheet, we're well capitalized. We remain confident in the ability to deliver profitable growth in 2026. We've got ample liquidity to operate against our plan. With the debt, we had the opportunity to work with the prior partner we had a great relationship with. And then when I think about like the opportunity to cost out, it's very substantial. I mean 1,000 basis point improvement in Q3 that's going to carry into Q4. Last year in Q4, we were negative $6 million. This year, we've guided negative $2 million to 0 with every opportunity to become profitable. All of that will continue to benefit 2026 and provides us the opportunity to drive substantial leverage in the business. And we're seeing that. Charles Cohn: So those are completely independent things. So we thought it's a good idea to have access to just more liquidity in general. We don't anticipate actually utilizing that. And the objective remains to be profitable, but we believe it's been pushed out slightly due to product delays that we're very, very quickly trying to make up ground on, and we think ultimately will lead to a significantly better product, better platform, better business. Operator: The next question comes from the line of Greg Gibas with Northland Securities. Gregory Gibas: Apologies if I missed this, but did you kind of comment on ARPM and member growth assumptions implied in your Q4 guidance? Jason Pello: We have not. From an ARPM perspective, in the third quarter, we were at $374, which was up 24% year-over-year, which is a continuation of the changes we saw throughout the first half of the year where customers are switching to higher frequency Learning Memberships, and that was coupled with some pricing changes in the first quarter. And then from an Active Member perspective, we would look to end the year with 32,000 members, which is consistent with like the Active Member change that we've seen year-over-year in Q2 and Q3. But what I would also mention is we continue to focus on higher-value customers that have higher LTV. We're seeing that in the business today. Active MRR is up 7% at the end of Q3. New MRR continues to improve as we move throughout the back-to-school selling season, and you've got all the new operators in place driving improvements. And so net-net, that's how we're thinking about the fourth quarter. Charles Cohn: Yes, we were able to drive almost 1,000 basis points of EBITDA margin improvement. And as revenue inflects with that improved efficiency, we feel pretty good about the ability to drive significant operating leverage next year. So kind of thinking about like the sequence of the year and the back-to-school period, it has gotten like significantly strengthened as we've gotten a little bit deeper into the school year, thanks to a bunch of those operational improvements. And we would expect that a lot of the product improvements that we're shipping now contribute to further strengthening. And so that is occurring at the same time that we've also been able to optimize marketing spend, and it's ultimately going to be lower year-over-year, which will drive a lot of operating leverage. So we kind of feel good about that dynamic between being smarter on the customer acquisition side, what was positive MRR growth in Q3 and thus far, at least kind of as of this call. And so we're kind of feeling good about those trends. We recognize we want to drive significant growth inflection and profitability, and there's work to be done there, but the progress is like the actual efforts are pulling through in real life. Gregory Gibas: Got it. Very helpful. And if I could follow up regarding the delays in product launches. You mentioned weren't able to kind of capitalize on the back-to-school week as a result of that. Could you maybe characterize the response to learning member trends you've seen since those launches despite missing that critical period? Charles Cohn: Sure. So some of those are kind of independent, right? So they impact like existing customers and their satisfaction with them like once you become an active customer, then you get a better experience on our new Live Learning Platform. And we'll continue to do work to pull up funnel so that people actually become more and more aware of it prior to joining. But I think we've seen the products that have launched and they're concurrent with that occurring. And keep in mind, we're also improving a whole host of different aspects of the platform. One of the big wins this quarter was AI vetting and actually using it to have conversational interviews with tutors to better vet them at a much, much lower level. But kind of in combination, that's driving improvements to retention year-over-year, which is already up and is strengthening. And then one of the big benefits of this unified platform will be beyond kind of the first, call it, month or two where we've long seen this year improvements year-over-year in retention, our ability to effectuate much more significant retention trends that oftentimes require much deeper relationships and the leveraging of more different modalities, so live classes and diagnostics and AI tutor and a whole host of other things, our ability to actually drive discovery in a thoughtful way that is cohesive and easy and good for the customer, that becomes so much easier. And that's something that we would expect to actually happen, call it, from now and on on a sequential basis as we both roll out these experiences to more customers and then separately, as we continue to enhance them. Operator: There are currently no questions registered. [Operator Instructions] At this time, there are no further questions registered. I would now like to conclude today's call. Thank you all for participating. At this time, you may now disconnect your lines.
Operator: Good morning, all, and thank you for joining us on today's European Residential REIT Third Quarter 2025 Results Conference Call. My name is Drew, and I'll be the operator on the call today. [Operator Instructions] With that, it's my pleasure to hand over to Nicole Dolan, Investor Relations, to begin. Please go ahead when you're ready. Nicole Dolan: Thank you, operator, and good morning, everyone. Before we begin, let me remind everyone that during our conference call this morning, we may include forward-looking statements about expected future events and the financial and operating results of ERES, which are subject to certain risks and uncertainties. We direct your attention to Slide 2 and our other regulatory filings for important information about these statements. I will now turn the call over to Mark Kenney, Chief Executive Officer. Mark Kenney: Thanks, Nicole, and good morning, everyone. Joining me this morning is Jenny Chau, our Chief Financial Officer. Let's get started on Slide 4 with a high-level update. During Q3, ERES continued to execute on its strategic disposition program, focusing on maximizing unitholder value. We successfully completed several key transactions, including the sale of our commercial properties in Belgium and Germany, the closing of previously announced disposition of a portfolio containing 1,446 residential suites in the Netherlands and the sale of an additional 110-suite property in Rotterdam. Collectively, these transactions generated EUR 397 million in gross consideration, bringing our 2025 disposition total to EUR 489 million, with part of that capital used to repay EUR 238 million in debt. With remaining proceeds, ERES declared and paid a special cash distribution of EUR 0.90 per unit, in line with our commitment to return capital to unitholders. Operationally, rent growth remained robust with same-property occupied AMR increasing by 4.7% to EUR 1,349 at current period end. However, you will see on Slide 5, our residential occupancy was down to 90.8% as of September 30, 2025, on the total and same-property portfolio. This reflects elevated vacancies associated with our disposition strategy as we are intentionally keeping additional suites offline each month in order to maximize sale value. With that introduction, I will now turn the call over to Jenny to highlight our financial results. Jenny Chou: Thanks, Mark. Slide 7 provides some key performance metrics for the third quarter of 2025. Due to lost rent on vacant units combined with an increase in repair and maintenance costs, the REIT's NOI margin was down to 67.8% for the current quarter on a same-property basis from 76.2% realized for the 3 months ended September 30, 2024. Our diluted FFO per unit was EUR 0.13 for Q3, which is down from EUR 0.04 in the comparative period, primarily due to the significant amount of property sales that have been completed since. On Slide 8, we've highlighted our resilient financial position and liquidity. As we've used part of our disposition proceeds to repay debt, our ratio of adjusted debt to market value has decreased to 34% as of September 30, 2025, down from 53% as at comparative period end. We're also actively managing our access to liquidity and ensuring ongoing compliance with all covenants. Turning to Slide 9. You'll see that we have no mortgages maturing over the remainder of 2025 and '26, which provides us with financial flexibility to continue executing on value-maximizing transactions. As we advance on our disposition program, prudent financial stewardship will remain central in our decision-making. With that, I will hand the call back to Mark. Mark Kenney: Thanks, Jenny. By period end, ERES's portfolio consisted of 1,033 residential suites and ancillary retail space in the Netherlands as listed out on Slide 11. We're continuing to work with our financial and real estate advisers on the sale process for this remaining portfolio. Buyer interest is still active, and the REIT is exploring several potential alternatives, including individual asset transactions that present compelling value opportunities in the near term and/or a larger portfolio disposition. These efforts are being advanced alongside certain structural and outstanding tax matters, including the previously disclosed reassessments by the Dutch tax authority. Ultimately, our primary focus is on realizing the full value of the REIT's remaining portfolio and maximizing distribution of capital proceeds to unitholders. While the wind-down process involves complexity and uncertainty, we remain committed to acting in the best interest of all unitholders and providing timely updates as developments unfold. With that, we would now be pleased to take any questions that you may have. Operator: [Operator Instructions] Our first question today comes from Sairam Srinivas from Cormark Securities. Sairam Srinivas: Mark, just going back to the time line of transactions, are you basically comfortable with the idea that this will probably wrap up in Q4? Or are we looking for something beyond that? Mark Kenney: No, we've not provided clear guidance on a final wrap-up of the REIT. There are issues here as we discussed with tax and other issues to work out, but we will be providing definitive feedback when we have more certainty. Operator: With that, we have no further questions in the queue at this time. I'll now hand back over for some closing comments to Mark Kenney. Mark Kenney: Thank you, operator, and thank you, everyone, for joining us this morning. If you have any further questions, please do not hesitate to contact us at any time. Thank you again. Have a great day. Operator: Thank you all. That concludes today's call, and you may now disconnect your lines.
Operator: Good day, ladies and gentlemen, and welcome to today's Iveco Group Third Quarter 2025 Results Conference Call and Webcast. We would like to remind you that today's call is being recorded. [Operator Instructions] At this time, I would like to turn the call over to Federico Donati, Head of Investor Relations. Please go ahead, sir. Federico Donati: Thank you, Razia. Good morning, everyone. I would like to welcome you to this webcast and conference call for Iveco Group Third Quarter Financial Results for the period ending 30th September 2025. This call is being broadcast live on our website and is copyrighted by Iveco Group. I'm sure you appreciate that any other use, recording, or transmission of any portion of this broadcast without the consent of Iveco Group is not allowed. Hosting today's call are Iveco Group CEO, Olof Persson, and me, Federico Donati, Head of Investor Relations, standing in for the financial section usually covered by our CFO, as Anna Tanganelli could not be present today. Please note that any forward-looking statements we make during today's call are subject to the risks and uncertainties mentioned in the safe harbor statement included in the presentation material. Additional information relating to factors that could cause actual results to differ from forecast and expectation is contained in the company's most recent annual report, as well as other recent reports and filings with the authorities in the Netherlands and Italy. The company presentation may include certain non-IFRS financial measures. Additional information, including reconciliation to the most directly comparable IFRS financial measures, is included in the presentation material. Furthermore, on the 30th of July 2025, Iveco Group announced the signing of a definitive agreement to sell its defense business, IDV, and Astra brands to Leonardo S.p.A. The transaction is expected to be completed no later than 31st March 2026, subject to the customary regulatory approvals and carve-out completion. In accordance with IFRS 5, noncurrent assets held for sale and discontinued operations, as the sale became highly probable in July, the Defense business meets the criteria to be classified as a disposal group held for sale. It also meets the criteria to be classified as a discontinued operation. In accordance with applicable accounting standards, the figures in the income statement and the statement of cash flow for the 2024 comparative periods have been recast consistently. Additionally, in 2024, the firefighting business was classified as a discontinued operation. Its sales were completely on the 3rd of January 2025. As a consequence, the 2025 and 2024 financial data shown in this presentation refer to the continuing operation only unless otherwise stated. Finally, please note that, subject to applicable disclosure requirements pending the publication of the final offer document, we will not comment on the tender offer. As per the joint press release on July 30, announcing the entering into the merger agreement and the press release by Tata on August 19, announcing the filing of the document with Conso, anyone interested is invited to refer to the offer notice published on July 30, 2025, which indicates the legal basis, rationale, condition, terms and key elements of the tender offer. All the aforementioned material and announcements are available on the Iveco Group corporate website, where any additional relevant information will be published in due time. We will not comment on the sale of the defense business to Leonardo either. The rationale, terms, and conditions of the sale, with the details as currently available, were disclosed on July 30. As announced, the transaction is expected to be completed in Q1 2026, subject to customary regulatory approvals and carve-out completion. Consistent with the agreement reached with Tata, Iveco Group will distribute the net proceeds of the transaction based on the enterprise value agreed with the purchaser via an extraordinary dividend estimated at EUR 5.56 per common share to be paid out to the company's shareholders before the tender offer is settled. With those points covered, I'd like to turn things over to our CEO, Olof. Olof Persson: Thank you very much, Federico. And let me add my own warm welcome to everyone joining our call today. I'll start with Slide 3, outlining the main highlights from our third quarter performance, excluding defense. Throughout the quarter, we maintained a high focus on our long-term vision and maintained discipline in the execution of measures that will help achieve it. These include tight control on inventory levels, diligent cost management, and the ongoing commitment to our multiyear efficiency program, as well as its acceleration for the current year, which is proceeding as planned. We have also identified additional areas of improvement, which will deliver further full-year savings. In our Truck business unit, we concentrated on balancing pricing and market share. The focus was on protecting our leadership position in the LCV chassis cap subsegment, where pricing dynamics were more challenging and maintaining a very strict pricing discipline in medium and heavy in support of the final phase of the introduction of our model year 2024 across European countries, and thereby ensuring the quality, performance, and the full potential of the product. I'd now like to break down our performance by business units. In the truck industry, demand in Europe remained particularly low in the chassis cab subsegment, which affected profitability in the quarter, which was only partially offset by strict cost control measures. European deliveries in the period were down year-over-year, particularly for light commercial vehicles, which were down 27% versus last year. At the end of the quarter, worldwide book-to-bill for trucks came in at 1.0, up 25 basis points versus the same period last year. In Powertrain, we began to see the first sign of a sustainable recovery in engine volumes as had been expected, supporting profitability improvements. In our bus business unit, profitability was impacted by costs associated with the ramp-up of production in our NNA plant in France. But despite this, our order book remains strong, providing us with a clear long-term visibility. Free cash flow absorption in the third quarter of 2025 was at EUR 513 million, broadly in line with last year's performance, when we exclude from last year the positive effect of the deployment of the higher inventory levels that we registered at the end of June 2024. You will recall that this was linked to the phase-in and phase-out of the new model year in trucks. Going forward, we will continue to remain very focused on quality and operations in line with our long-term pathway, maintaining tight control on production levels and inventory management, and on delivering our efficiency program. Slide 4 outlines our indicative timeline for the first half of 2026, with the sale of our defense business and the tender of the Veeco Group progressing in parallel. Regulatory filings for both transactions, including those required by the European Union, are currently underway and subject to final approvals. Both the sale of the defense business to Leonardo and the subsequent distribution of the net sale proceeds through an external ordinary dividend and the tender of [Bertata] are on track for completion within the first half of 2026, as we stated previously. If we're then moving on to Slide 6 and the Truck segment. We maintained pricing discipline and tight inventory control throughout Q3 in 2025. European industry volumes increased by 5% year-over-year for both light commercial vehicles and medium and heavy trucks. Iveco's third-quarter LCV market share was 11.7%, of which 29.7% was in the Chassis Cab subsegment and 65.8% was in the upper end of the segment. Industry growth overall was largely driven by the camper subsegment, where Iveco has limited exposure. Chassis Cab volumes, on the other hand, remained under pressure, yet we managed to protect our leadership position. In medium and heavy trucks, our market share reached 7.2% with heavy trucks accounting for 6.4%. In this segment, we implemented a selective sales mix strategy throughout the quarter to optimize channel profitability and support the final phase of the introduction of our model year 2024 across European countries and thereby ensuring the quality, performance, and full potential of the product. Our ability to adapt to segment dynamics while preserving pricing integrity and managing inventory effectively reflects the strength of our commercial execution and the strategic clarity of our truck business. Moving on to Slide 7. Our worldwide truck book-to-bill ratio reached 1.0 at the end of the quarter, registering a 25 basis point improvement year-over-year. This reflects balanced commercial performance across geographies and product categories. In light commercial vehicles, our European order intake rose by 17% compared to Q3 2024, supported by a book-to-bill ratio of 1.05. This increase, we believe, is a welcome first sign of a recovery coming on the heels of a prolonged period of production coverage well below last year's level, 7 weeks this year versus 12 weeks last year. And South America experienced even stronger growth with order intake up 37% and a book-to-bill ratio of 1.11. In medium and heavy trucks, European order intake declined by 3% year-over-year with a book-to-bill ratio of 0.82. South America saw a more pronounced contraction of 21% with a book-to-bill ratio of 0.94. While these figures reflect a softer demand environment, the backlog remains stable at 7 weeks of production coverage. Let's move to the next slide, #9, with bus industry volumes and market shares. Iveco Bus during the quarter continued to demonstrate strong competitive positioning across Europe. In the intercity segment, our leadership was reaffirmed with a 55.1% market share in Q3, representing a 5% point increase year-over-year. This gain can be attributed to the successful introduction of electric models, which are contributing positively to both volumes and brand perception. In the European city buses segment, our market share stood at 15.1% in Q3. We expect an acceleration in deliveries during Q4, consistent with the seasonal patterns and supported by backlog conversion. Overall, Iveco Bus maintained its consolidated #2 position in the European market with a 21.3% market share year-to-date. Moving on to Slide 10. In Q3 2025, our bus order intake declined by 17% following the strong momentum we enjoyed in the first half of the year. This front-loaded demand contributed to a 6% year-to-date increase as of September. Deliveries rose 20% compared to Q3 2024, demonstrating robust execution and sustained customer demand. The book-to-bill ratio stood at 0.77 at the quarter's end, a figure impacted by the scheduling of orders early in the year. Importantly, year-to-date order intake remained higher than in 2024 at 1.08, demonstrating the segment's resilience. On the 29th of October, Iveco Bus signed a framework agreement with Ildefrance Mobility, a leading public transport authority managing one of Europe's largest and most complex transit networks. Iveco Bus will supply Ildefrans Mobility with up to 4,000 low and zero-emission buses and coaches between 2026 and 2032. This is in line with the brand's long-term strategy to build on zero-emission and electromobility solutions. In conclusion, we maintained a solid long-term visibility for intercity and city bus with coverage now extending well into the second half of 2026. On Slide 12, we have the delivery performance for our powertrain business unit. And after nearly 2 years of consecutive year-over-year decline, engine volumes increased by 1% compared to Q3 2024. While modest, this improvement reflects the recovery we predicted last quarter. During the period, new third-party customer contracts were signed between Lindner and JCB. Production for these orders will begin in 2026. These contracts position FBT Industrial as one of the main references in the agriculture industry and are in line with our long-term strategy to grow the number of third-party clients. Operational discipline remains central to our approach. We continue to manage costs diligently and remain committed to our efficiency program. These efforts are helping us to protect margins and ensure sustainable delivery as volumes recover. Looking ahead, we expect the recovery in deliveries to third-party customers to continue throughout Q4 and beyond, supporting profitability improvements. Going to Slide 14, look at our electric vehicle portfolio, where year-to-date delivery volumes continue to grow across the business units despite the challenging market demand scenario. This clearly shows the competitiveness of our product lineup and our unique positioning in LCV, where Iveco is the only truck maker to offer a complete fully electric product lineup ranging from 2.5 to 7 tons. With that, I finish my opening remarks, and I will now hand over the call to Federico. Federico Donati: Thank you, Olof. Let's now take a look at the highlights of our third quarter 2025 financial results on Slide 16. Again, all figures provided in the presentation refer to continuing operation only, excluding defense, if not otherwise stated. Q3 2025 closed with EUR 3.1 billion in consolidated net revenues and EUR 3 billion in net revenues of industrial activities. These figures reflect a contraction of 3.6% and 3%, respectively, on a year-over-year basis, mainly due to lower volumes in Europe for trucks and a negative ForEx translation effect, primarily in Brazil and in Turkey. The group adjusted EBIT closed at EUR 111 million with a 3.6% margin, and the adjusted EBIT of industrial activities reached EUR 76 million with a 2.5% margin, both contracted by 210 basis points versus Q3 2024. The net financial expenses amounted to EUR 58 million in the third quarter this year, in line with the same quarter last year. Reported income tax expenses come to EUR 17 million in Q3 2025 with an adjusted effective tax rate of 25%. This resulted in adjusted net income for continuing operations at EUR 40 million, down EUR 54 million versus last year, with an adjusted diluted EPS of EUR 0.15. Moving to our free cash flow performance in the quarter. Q3 2025 closed with a EUR 513 million cash outflow absorption, which was broadly in line with last year's performance, when we excluded from last year the positive effect of the deployment of the higher inventory level that we registered at the end of June 2024, as Olof said in his opening remarks. I will provide more details further in the presentation. Finally, available liquidity, including undrawn committed credit lines, closed solidly at EUR 4 billion on the 30th of September, of which EUR 1.9 billion was in undrawn committed facilities. Let's now focus on the net revenue of industrial activities on Slide 17. As you can see from the chart on the right-hand side of this slide, all regions contracted compared to the prior year, excluding South America, which was flat versus Q3 2024. Looking at our net revenues evolution by business unit, Bus was solidly up versus the prior year at plus 31%. Powertrain was flat, and the truck contracted 11% versus Q3 2024. More in detail, truck net revenues totaled EUR 2 billion in this quarter, down 11% versus the prior year, primarily as a consequence of 2 factors: First, a lower delivery rate in light-duty trucks due to the continuing challenging environment in the chassis subsegment. Second, a selective sales mix strategy throughout the quarter in heavy-duty trucks in order to optimize channel profitability and support the final phase of the introduction of our model year 2024 across European countries. Additionally, the top line was affected by an adverse year-over-year foreign exchange rate trend, mainly in Brazil and Turkey. Our bus net revenues were up 31.4% in Q3 2025, reaching EUR 719 million, thanks to higher volumes. And finally, our Powertrain net revenues were broadly in line year-over-year at EUR 745 million with higher volumes offset by an adverse foreign exchange rate impact. Sales to external customers accounted for 49%, in line with Q3 2024. Turning to Slide 18. Let me briefly comment on the main drivers underlying the year-over-year performance in our adjusted EBIT margin of Industrial activities. Volume and mix contributed negatively, EUR 67 million in the period, mainly due to lower truck volumes in Europe. The decrease in deliveries of light-duty vehicles particularly impacted the overall truck profitability. The year-over-year net pricing contributed positively for EUR 15 million at the Industrial Activities level and was positive across business units. Production costs were negative EUR 7 million year-over-year, with negative performance in Truck and Bus, partially offset by solid positive performance in powertrain. Finally, the year-over-year improvement in SG&A costs totaling EUR 17 million in this quarter and EUR 50 million to date is again a result of the acceleration of the efficiency action announced and launched at the beginning of this year. Let's now take a look at the adjusted EBIT margin performance for each industrial business unit on Slide 19. Truck closed the quarter with a 2.9% adjusted EBIT margin. As already mentioned, this was a result of lower volumes and negative mix, mainly due to the continuing challenging environment in the chassis subsegment, which experienced lower volumes in Europe. The negative absorption due to the lower production level was only partially compensated by the cost containment action implemented in the period. Truck pricing in Europe was positive year-over-year, confirming our tight price discipline. The Q3 2025 adjusted EBIT margin for our bus business unit closed at 4%, down 110 basis points versus the prior year, with higher volumes and positive price realization offset by higher costs associated with the ramp-up of production in our Annonay plant. Finally, the Powertrain adjusted EBIT margin closed at 5.1% in the third quarter, resulting from continued and diligent cost control and operational efficiency as well as a slight increase in engine volumes. Let's now have a look at the performance of our Financial Services business unit during the quarter on Slide 20. The Q3 2025 adjusted EBIT for Financial Services closed at EUR 35 million with a managed portfolio, including unconsolidated joint ventures of EUR 7.5 billion at the end of the period, of which retail accounted for 45% and wholesale 55%. This figure is down EUR 106 million compared to the 30th of September 2024. Stock of receivable past due by more than 30 days as a percentage of the overall own book portfolio was at 2.1%, which is slightly up versus last year. The return on assets remained solid at 2.1%. Let's move to our free cash flow and net industrial cash evolution on Slide 21. As said previously, the Q3 2025 free cash flow absorption came in at EUR 513 million, which is broadly in line with last year's performance when we exclude the positive effect of the initial deployment of the higher inventory level that we registered at the end of June 2024. The lower adjusted EBITDA was offset by positive year-over-year swings in financial charges and taxes, the positive delta in working capital, and lower investments. The negative year-over-year swing in provision was driven by lower sales volume in our truck business unit. Lastly, investment totaled EUR 150 million in Q3 2025, down EUR 39 million versus the same period last year. This is in line with the already disclosed acceleration of our efficiency program and the reprioritization of some of our less strategic investments. Moving now to Slide 22. As of the 30th of September 2025, our available liquidity for continuing operations, excluding defense, stood solidly at EUR 4 billion with EUR 2.3 billion in cash and cash equivalents and EUR 1.9 billion of undrawn committed facilities. Looking at our debt maturity profile, the majority of our debt will mature from 2027 onwards, and our cash and cash equivalent levels will continue to more than cover all the cash maturities foreseen for the coming years. Moving now to my last slide for today, # 24, with the discontinued operational performance of our Defense business unit. The net revenues for Defense came in at EUR 293 million, up 9.7% compared to Q3 2024, driven by higher volumes. The adjusted EBIT was EUR 25 million compared to EUR 23 million in Q3 2024, resulting from production efficiency, partially offset by higher R&D costs. The adjusted EBIT margin was at 8.5%, down 10 basis points compared to Q3 2024. The funded order book level at the end of September 2025 reached almost EUR 5.3 billion, up close to EUR 300 million from the end of June 2025. Thank you. I will now turn the call back to Olof for his final remarks. Olof Persson: Thank you very much, Federico. And I'd like to conclude this presentation by looking at both the outlook for the industry and our own financial guidance. I will also, as usual, provide some takeaway messages from what you have heard today. We confirm our total industry outlook for the current year across the segments and regions. Specifically, we expect demand to remain low in the chassis cab subsegment and South America to continue to be negatively impacted by reduced consumer confidence and less willingness to invest in heavy-duty trucks, given the increase in interest rates in Brazil since the beginning of the year. The next slide has our full-year 2025 updated financial guidance, also expressed as continuing operations, which means excluding defense. Our full-year 2025 financial guidance has been revised across all key performance metrics, except for the industrial activities net revenue, which remains unchanged. This update reflects the year-to-date performance negatively affected by 2 main circumstances. Firstly, a slower-than-expected recovery in light commercial vehicles during the second half of 2025, particularly in the chassis cab subsegment, which has negatively affected our truck business units' year-to-date profitability. Secondly, we have allowed for extra costs associated with the ramp-up of production in our NMA plant, which negatively impacted our bus business unit's profitability in the third quarter. Implied in our updated guidance is increased Q4 profitability year-over-year across business units and an additional positive effect from the acceleration of our efficiency program compared to the initial EUR 150 million CapEx and OpEx. Based on these premises, the updated guidance for our full year 2025 is as follows: at the consolidated level, including Defense, group adjusted EBIT is now between EUR 830 million and EUR 880 million. And for Industrial Activities, net revenues, including currency effect, confirmed to be down between 3% and 5% year-over-year. Adjusted EBIT from industrial activities at between EUR 700 million and EUR 750 million, and industrial free cash flow is between EUR 250 million and EUR 350 million. On the slide, we have also shown what this guidance implies for continuing operations only. The free cash flow forecast, excluding Defense, is not included due to ongoing activities related to the separation that could affect some balance sheet accounts. We will continue to manage production levels for trucks in Europe in line with the retail demand, while at the same time, maintaining diligent cost management and leveraging the benefits of our efficiency program across business units. And now to Slide 28. Let me provide you with some takeaway messages from today's call. First, as I said, implied in our revised guidance is increased Q4 profitability year-over-year across business units. And if we break that down by business unit, in trucks, our LCV and medium and heavy vehicles are sold out, covering the remaining 2 months of the year. This, combined with strict control on pricing and cost management, will positively contribute to higher profitability compared to the fourth quarter of last year. In the bus, ramp-up costs are now behind us, and we expect higher volumes to contribute positively to the year-over-year performance. And lastly, in Powertrain, as mentioned earlier, third-party client volumes are expected to continue their year-over-year growth, supporting progressively profitable improvements. The increase in third-quarter order intake for light commercial vehicles is an encouraging early sign that the worst is behind us. In heavy-duty trucks, we will continue to maintain strict pricing discipline to support our model year 2024, ensuring the quality, performance, and full potential of the product. In Powertrain, new third-party customer contracts were signed, among which are Lindner and JCB, with production for these orders beginning in 2026. Our robust order book remains strong, providing solid visibility well into the second half of 2026, and the funded order book for our Defense business unit reached almost SEK 5.3 billion at the end of September 2025, demonstrating continued momentum in the industry. Thirdly, we are proceeding at pace with the acceleration of our efficiency program and reprioritization of certain investments, confirming the expected EUR 150 million in savings in CapEx and OpEx for the current year, as well as additional areas of improvement, which will deliver further full-year savings. And finally, we are on track to complete the sale of our defense business to Leonardo as per our original combination, and the tender offer by Tata is expected to be completed within the first half of 2026. In conclusion, as always, we are focused on our commitment to operational excellence. Each business unit remains laser-focused on its short- and long-term objectives, working to deliver lasting value for all our stakeholders. With that, I would like to thank you and hand it back to Federico. Federico Donati: That concludes our prepared remarks, and we can now open it up for questions. To be mindful of the time, we kindly ask that you hold off on any detailed modeling and accounting questions. For this, you can follow up directly with me and the Investor Relations team after the call. In addition, as already pointed out, pending the publication of the formal offer document on the tender offer by Tata, we will not comment on the legal basis, rationale, condition, terms, and key elements of the tender offer. In this respect, for the time being, you are kindly invited to refer to the materials already published in the ad hoc section of the company website. As for the sale of the defense business to Leonardo, the activities are ongoing and on track, consistent with the timeline commented during the presentation. The company will strictly comply with applicable disclosure requirements, but for the time being, it has nothing to add vis-Ã -vis what has already been announced. Operator, please go ahead. Operator: [Operator Instructions] We are now going to take our first question, and the questions come from the line of Akshat Kacker from JPMorgan. Akshat Kacker: A couple of questions, please. The first one is on the truck and LCV business. Obviously, the trends this year have been difficult to forecast and understand, given the pre-buy last year and also the changeover in the product family. Could you just help us understand how you're looking at the business going forward, probably into Q4, but also any early signs on how you expect the LCV business to develop going into 2026? And if you could just add some color regionally as well, between Europe and Brazil. We have heard from a few of your peers that inventories are high in the Brazilian and LatAm markets, and overall, there is some pricing pressure. So some details there would be helpful. The second question is on the powertrain business. You talked about a slight increase in engine volumes, the first signs of recovery. Could you just give us some more details in terms of where these green shoots are emerging from? And we now expect volumes to turn positive going into the fourth quarter, please? Olof Persson: Okay. So on the LCV market, I mean, as we said, the indications we're getting now, and also you saw on the book-to-bill and the increase in our order intake, give us confidence, and we believe that the worst is behind us, and we will see a gradual uptake. We see that also in the activity levels in the market. And as we said, we are sold out now for this year and going into next year. So I think it's always difficult to really judge where this is going, coming from such a long period of a lower market. But I feel the LCV side, I think we have the worst behind us. And exactly how that will pan out coming into 2026, we will have to see. We need a couple of more weeks or months to see that coming into it. But I would say so far, so good, and it's really good and encouraging to see that this is opening up. And that is, of course, then moving also in our key segments on the cabover and both in the medium and the upper side of it. On the LatAm, I didn't really -- LatAm pricing. Akshat Kacker: No, I was referring to the inventory level, if I understood correctly. correct? Federico Donati: Yes, that's right. Akshat Kacker: Some of your peers talk about the weakness in that market, specifically in the medium and... Olof Persson: Yes, when it comes to the inventory, both our own inventory, the dealer inventory and the whole chain, we manage that very carefully, as you know, and we do that also in LatAm when we see the order volumes going down we, of course, adjust production, and we do that rather quickly in LatAm because it's a simple one factory system where we can really manage that in a good way. So I don't have any concerns about the inventory levels in LatAm going forward, even though, of course, on the heavy-duty side, there is, as we said, a decline in the market and the order intake. Then the final question was around Engines. So the green shoots for the engine. I would say that there are a couple of things. One is, of course, that we are getting third-party business. The team in Powertrain has done a great job in actually capturing more third-party business, which is good. We also see, of course, and we have said that before, it's around the stock level of engines out there in the market and the time it has taken to destock that given the downturn that we've seen over the last basically 2 years. And that also gives you confidence that this is covering up for the destocking coming to an end, and thereby, the volumes are coming back up again. So it's a combination of that plus the fact that we actually are successful in getting third-party business. That's giving me confidence going forward in the Powertrain side. Operator: We will now proceed with our next question, and the next questions come from the line of Martino De Ambroggi from Equita. Martino De Ambroggi: The first question is still on the LCV. Olof, I understood your qualitative comments on LCV for next year. But could you provide what your feeling is in terms of Europe and South America if in '26, the market overall is able to have at least a small single-digit rebound in terms of volumes? And the second question is specifically on the defense business because you are providing guidance with and without defense. I was wondering if in implying what the defense EBIT and revenues, is it correct to take EUR 150 million of adjusted EBIT and probably close to EUR 1.3 billion sales, or there are intercompanies or other items that could affect these figures? And I clearly understand you are not providing any updated guidance without a defense on free cash flow. But could you comment on what is the normalized free cash flow or cash conversion for this business? What was in the past? Olof Persson: Okay. If I start with the LCV market, I think I need to stay a little bit on top and give you the feeling I have right now because we need a couple of, I would say, weeks or at least a month to really see where the activities are going to start with in 2026. I mean, we now have visibility for the rest of the year, sold out, and then we need to see how the activity is going. But as I said, so far, so good. I mean, the activity levels that we see from our customers, the tender activities we see are coming. We do see, as you've seen, an increase in the order intake coming from very low levels in Q2 and so on and so forth. So the indications are good. But let's see when we have got that all together, and we will come back to that with a more detailed market development on that one. On the other 2 questions, I'll leave it to you. Federico Donati: Yes. On the defense side, I think, Martino, on the EBIT side, yes, you can be rounded to the number you have mentioned, as well as on the top line. And in terms of the free cash flow of defense, as you know, we have never disclosed it by business unit. The only thing I can say is a cash-generative business, but on a full-year basis. I hope this helps. Operator: We are now going to take our next question, and the next questions come from the line of Nicolai Kempf from Deutsche Bank. Nicolai Kempf: It's Nicolai from Deutsche Bank. Also 2. Maybe coming back on your full year guidance, it does imply a significant step-up in Q4 of around EUR 250 million in Q4 earnings versus EUR 300 million in the first 9 months. I mean, you mentioned that all segments will be stronger in Q4, but can you just give a bit more color on which segment should drive that? And it's probably going to be the light trucks, but any help would be appreciated here. And the second one, if I look at the EU heavy truck market share, came in at 6.4%. I think historically, you were closer to 9% or 10%. And that is despite the fact that you have launched a new model here. Should we expect that next year, you will have a higher market share? Or why is it below the historic run rate despite having a rather new product in the market? Olof Persson: So on the Q4, I think I gave the guidance that -- I mean, I can give at this point in time. The basis for the improvements that we see is there in the truck side is, of course, good to see that we sold out. That means that we can improve. If you look at the backup of the slide, you can also see that the inventory with our dealers has gone down. We have managed the dealer inventory together with the dealers and our own dealer very well. So we're having a system set up for an increase on that side, which I think is promising and stable in that respect. Then, as I said, powertrain bus, increased volumes, the profitability, we have the cost behind us on the ramp-up in Annonay. And just a comment on that, it was absolutely necessary to make sure that we create a very stable, efficient Annonay plant in terms of quality, volume, and efficiency, and we have that behind us, and we are pushing forward now. And then, of course, on the powertrain side. On top of that, as I mentioned and has been mentioned a couple of times, an efficiency program. Don't forget the efficiency program, that's never a linear coming in the profit and loss. It's actually an accelerating program. It's always those programs that are very often. And of course, the majority or a big chunk of that program will now start to come in fully with all the activities we have done, not only on the SEK 150 million that we talked about, but also the activities that we have seen. So those are the things that are actually going to drive the Q4 in coming back and making the result up to the guidance we have. On the EU market side, I think we specified we are now entering into the final phase of the launch, and we have been in a market situation that has been really focusing on keeping the price level on this new vehicle, because I truly believe that we're going to live on this product for many, many years. And we need to make sure that it is in the market in the right way. We have had a very stringent price discipline. We will continue to have a price discipline to really ensure, as I said, all the different aspects of the product. So I definitely see this product going forward in the mid and the long term being a product that definitely has a potential for more market share than it has today. That's for sure. Operator: We will now take one final question. And our final question today comes from the line of Alex Jones from Bank of America. Alexander Jones: Two from my side as well, please. Could you talk a little bit about the medium and heavy-duty outlook that you see in terms of order trends also into 2026? I know you talked a bit more positively about LCV, but medium and heavy orders were down 3% year-on-year in Europe. So your thoughts would be interesting. And then the second question on defense. Can you be more specific at all on the mix factors that weighed on margins this quarter, at least sequentially, and whether you expect those to continue going forward, Q4, and into next year? Olof Persson: Well, on the medium and LCV, that was the feeling going forward into the fourth quarter and into next year. And again, I repeat what I said. On the LCV side, I have a good feeling about the activity level. Also, I would say, on the medium-heavy. And as we progress with our final implementation and launch of the model year '24, we're going to see impacts there as well, not only in terms of market, but also in terms of market share over time. And we're going to continue to keep a strict, selective approach, making sure that we get the pricing. So I would say we come back in the beginning next year, as we normally do, to have a view on the market and where the market is going for heavy and medium. But we're well-positioned in both of these markets. And I think, as I said, I feel comfortable that once we are really fully launched this product now, we're going to see the positive impacts coming, full confidence in that. It is a very, very good product in terms of all the different aspects. And I'll leave it to you, Federico, on the... Federico Donati: On the Defense, sorry, you were talking and referring to the mix, if I take your question correctly, correct, Alex? Alexander Jones: Yes, please. Federico Donati: Yes. But I think, in defense is more generally speaking, you need to consider that we have a very long and solid order book that just needs to be deployed. And so, probably looking at the defense just on a quarterly basis, it is much better to look at it on a full-year basis, and the marginality also. So this is just a question of looking at it on a yearly basis, and the mix can also change by region and by country, and by product itself. So as Olof said at the beginning, we are expecting the performance of each single business unit up year-over-year, and that will be the case for the Defense as well in Q4. That is what I can share with you. Operator: Thank you. That concludes the question-and-answer session. I will now turn the call back to Mr. Frederico Donati for any additional or closing remarks. Federico Donati: Thank you all, and have a nice rest of the day. Thank you. Bye. Operator: That concludes today's conference call. Thank you all for your participation. Ladies and gentlemen, you may now disconnect your lines.
Operator: Good afternoon. Thank you for attending the FIGS Third Quarter Fiscal 2025 Earnings Conference Call. My name is Matt, and I'll be the moderator for today's call. I'd now like to pass the conference over to our host, Tom Shaw, Senior Vice President of Investor Relations. Tom, please go ahead. Tom Shaw: Good afternoon, and thank you for joining us to discuss FIGS Third Quarter 2025 results, which we released this afternoon and can be found in our earnings press release and in the shareholder presentation posted to our Investor Relations website at ir.wearfigs.com. Presenting on today's call are Trina Spear, our Co-Founder and Chief Executive Officer; and Sarah Oughtred, our Chief Financial Officer. As a reminder, remarks on this call that do not concern past events are forward-looking statements. These may include predictions, expectations or estimates, including about future financial performance, market opportunity or business plans. Forward-looking statements involve risks and uncertainties, and actual results could differ materially. These and other risks are discussed in our SEC filings, including in the 10-Q we filed today. Do not place undue reliance on forward-looking statements, which speak only as of today and which we undertake no obligation to update. Finally, we will discuss certain non-GAAP metrics and key performance indicators, which we believe are useful supplemental measures for understanding our business. Definitions and reconciliations of these non-GAAP measures to the most comparable GAAP measures are included in the shareholder presentation we issued today. Now I'd like to turn the call over to Trina. Catherine Spear: Thanks, Tom, and good afternoon, everyone. Our third quarter results are built on the momentum generated during the first half of the year, delivering our highest quarterly year-over-year revenue growth over the past 2 years, supported by strong performance across the board. Net revenues were up 8% for the quarter, well ahead of our plan. Importantly, this success was pronounced across the core parts of our business, scrubwear, the U.S. and our business as usual selling days. At the same time, we drove the core while executing our plan to pull back on promotions. We believe these positive trends within our foundation are a great sign of our brand health and support the sustainable growth story we see ahead. We also executed well across the P&L in Q3. Gross margin remained healthy, approaching 70% despite the growing impact of tariff headwinds. Substantial SG&A leverage reflected both the lapping of outsized expenses last year, but more importantly, the success of our ongoing efficiency and tariff mitigation efforts. Overall, this execution supported an impressive 900 basis point improvement in our adjusted EBITDA margin to 12.4% for the period. As we look ahead, we are seeing this positive momentum carry over to the start of Q4, and we are meaningfully increasing our outlook as a result. We now expect Q4 to be our strongest net revenue growth of the year, driving our full-year estimate to approximately 7% growth. We also have increased our adjusted EBITDA margin expectation above the high end of our original outlook and back to low double-digit levels. This reflects the great progress we have made during the year despite the onset of tariff headwinds. Overall, we are executing exceptionally well against our expectations and driving better consistency. I'm so proud of our team's collective effort as we look to deliver to all of our stakeholders, most importantly, our healthcare professionals. Reflecting on our year-to-date results, we have seen an outstanding response to our brand and wanted to spend some time on this call walking through some of the dynamics we see contributing to our top line outperformance. At the highest level, it really comes down to our success in delivering a great product assortment and impactful connections. Starting with our product strategy, we are excited about the direction we are headed in and how we are more effectively delivering our portfolio to healthcare professionals. We see 4 interrelated areas of focus that are both paying dividends today and setting us up for success in the future. These include improved function and fit, expanded head-to-toe solutions, strategic inventory investments and stronger calendar alignment. We recognize the importance of function and fit. These are already hallmarks of our brand, but areas to continually improve in to address the evolving needs of healthcare professionals. From a functional standpoint, we are delivering impactful and relevant new silhouettes, which are resonating with new and existing customers. This focus has been key in driving our core while also demonstrating success in elevating our assortment. Function also informs fabric leadership, where our category-defining FIONx fabrication remains the centerpiece of our brand. However, we know that there are opportunities to address the full range of activities that healthcare professionals go through every day. Our FORMx fabrication debuted in Q1 for environments where comfort and stretch are paramount, and we have seen momentum build as we have methodically expanded offerings throughout the year. We also just announced our next fabric solution, FIBERx, which is set to debut in Milan at the 2026 Winter Olympics. Lightweight yet structured, soft yet durable. This fabric is designed to work in environments, like for those supporting our Olympic athletes, where durability is particularly important. Looking at our fit initiative, our efforts are already paying off with lower returns, fewer inbound comments to our customer experience team and improved customer trust. With our obsession with function and fit coming together, we are also excited with how our enhanced product design work will elevate the entire product portfolio in 2026 and beyond. Continuing to build this strength in our core opens the aperture for outdating healthcare professionals from head to toe. For example, our recently introduced ArchTek compression socks demonstrate our latest commitment to category leadership as the first ever patented medical-grade compression socks in the market. Across additional areas such as outerwear, underscrubs and footwear, our team has developed a road map of how we plan to prioritize and build out these opportunities in the years ahead. With confidence in great product, we are investing appropriately. Coming off recent periods of more conservative buying plans, we have made more informed and deeper inventory investments across certain styles and colors. This action has contributed to a better flow of newness to our healthcare professionals while also supporting better overall in-stock levels. Finally, this all ties directly to our enhanced merchandising work around calendar alignment. We have added more rigor to how and when we deliver our product and messaging, efforts that have not only enhanced productivity across launch moments, but also our ability to leverage those moments in driving demand back to the core. This work has added importance as we reset our promotional cadence this year and as we execute against a repeatable, scalable framework for consistently delivering great products. As excited as we are with our product direction, our impact would not be what it is without our unique ability to serve our community and build connections in ways that only FIGS can. We are seeing the payoff of our amazing top-of-funnel moments that started with some of last year's big brand splashes and have continued throughout 2025. Looking at some of our recent successes, let's start with what was a unique opportunity heading into this year's Emmy awards. Last call, we detailed our advocacy work in Washington, D.C. with actor Noah Wyle, work which went viral across our community. When Noah was then nominated for Best Actor for The Pitt, he challenged us to make a tuxedo for the Emmy that was as comfortable as the scrubs he wears onset. We stepped up to the challenge by creating a first-of-its-kind tuxedo. With subtle details and craftsmanship, we are proud to support Noah's desire to bring the healthcare community directly to the red carpet. As the night progressed and momentum built, we strategically aired our Where Do You Wear FIGS spot during the last commercial segment before the awards for Best Actor and Best drama were announced. This was executed perfectly as Noah and The Pitt went on to win both of those awards coming out of the break. On stage, Noah eloquently dedicated his award to anybody who's coming on shift tonight or anyone who's coming off shift tonight. This overall moment became among the most viral in our history with multiple best dress nods for Noah and 175 total placements across traditional media and social, including over 30 top-tier press articles across fashion, entertainment and lifestyle outlets. Most importantly, our actions led healthcare professionals, our awesome humans, to feel seen in a way they rarely do on the world's biggest stage. Our brand work was just getting started as we continued our year-long celebration of ready-to-wear FIGS. Following the Emmys, we debuted our global installment of the campaign filmed across Tokyo, London, Mexico City and Los Angeles, showing how medicine is a universal language. We are excited to be able to amplify our message in key countries with upper funnel support. It is also important to highlight our work supporting breast cancer awareness. It's easy to highlight the commercial success of the campaign with our Epping Pink and Fight Club Pink color launches being one of our top-performing color drops in our history. The more important part, the harder part was showing the inspirational work of healthcare professionals, including Dr. Elisabeth Potter, a breast reconstruction surgeon from Austin, Texas. The success of our campaign underscored how much she resonates and is at the forefront of industry conversations in the medical community. It also reinforced the type of impact that we aspire to with Dr. Potter proclaiming, you guys listen, we feel represented and you care about what we're going through. The success of these campaigns are further proof points of how we strike a deep emotional cord with healthcare professionals through the stories we tell. This has always been part of the secret sauce at FIGS, but since our Olympics campaign in 2024, we've been on a run of our best top-of-funnel campaigns ever, and we're determined not to slow down. Not only are our campaigns resonating in unprecedented ways for the brand, but we are also matching this work with added sophistication in our measurement. Performance marketing tools are giving us added insight into when to lean into brand moments and how to optimize our messaging. Importantly, we still have considerable opportunities ahead as we think about leveraging unique views of healthcare professionals to better personalize their experiences. Finally, it's important to highlight that our great execution is bolstered even further by an industry backdrop that is returning to its pillars of fundamental strength that most other apparel industries can only dream of. This includes the replenishment-driven, largely non-discretionary and seasonless nature of our scrubwear that healthcare professionals return to over and over again. It also involves a massive industry that is among the fastest-growing brand any sector with over 23 million U.S. and over 100 million international healthcare professionals. To put it simply, we are serving a strong industry with professionals that need uniforms to do their jobs. Raising the bar further in these foundational areas also helps fuel our efforts across our 3 emerging growth drivers: international, teams and community hubs. We are making important investments across all 3 of these opportunities in 2025, and each is expected to scale in importance in the years ahead. Starting with international, our expansion is a significant focus and one where we have a number of recent developments. With over 80% of global healthcare professionals located outside of the U.S. and driving less than 20% of our revenues, international remains a massive opportunity. We are rapidly expanding our footprint this year, jumping from 33 countries to nearly 60 planned international markets by the end of this year. We are driving this expansion in a disciplined way through 2 strategies, either go broad or go deep. To go broad, we are focusing on low-touch ways to open markets, leveraging technology and regional commonalities to efficiently expand. Following 12 new Latin American markets we announced last quarter, we are on the cusp of opening 11 new markets across the Middle East and Africa region. We know that healthcare professionals globally have the same awful experience as they used to have domestically, and this strategy is an easy way to begin to reshape expectations in many smaller markets while also informing potential future investments. With our go deep strategy, we're focusing on markets with more clearly defined opportunities and taking additional steps to more directly invest. For some of our more established markets like Canada, U.K. and Mexico, investments extend to infrastructure as we look to localize and scale. This includes adding in-market talent, brand marketing to drive awareness and logistics to drive more efficient operations and support profitable growth. This strategy also informs our approach to several new markets, including the launch of Japan in Q2. This market is trending well to-date and providing great early learnings with how to serve locally. We also took the same level of care as we opened South Korea in October. We are excited to announce today that we plan to debut in China through Tmall later this quarter. While near-term contributions of these 3 new markets are expected to be modest, we see the opportunity for each to be significant drivers of our long-term international growth story. We are also actively investing in our teams and community hub opportunities, solidifying each of their own foundation for meaningful growth going forward. With teams, we want to both capture the legacy demand for institutional-led buying and also influence behavior with great solutions to drive this mix even higher. To power these efforts, we have added talent to both nurture our great existing partnerships and also to better cultivate new ones. We also have a focus on unlocking seamless and customizable solutions for a wider range of institutions and are excited to begin deploying updated technology this quarter. With Community Hubs, we are excited to debut 3 new stores this quarter, starting with New York's Upper East Side planned next week and then followed by planned openings in Houston and Chicago. Each of these locations will apply key learnings from our first 2 stores and apply updated design and merchandising elements to enhance the overall experience. We continue to see the value of having a physical presence for the brand, particularly with nearly 40% of customers coming in new to the brand. We remain confident in our disciplined approach and are well-positioned to accelerate our cadence of openings in 2026. Before turning the call over to Sarah, I would like to reiterate how excited we are with our progress. As we have highlighted, the foundational pieces of our business are strengthening. Our community engagement has never been more impactful, and we see significant opportunities to sustain momentum in 2026 and beyond. Importantly, we will never lose our unyielding focus in support of the healthcare community. This is an intangible thing to measure, but one that defines our brand's leadership, caring, connection and authenticity. This is our non-negotiable. It's how we drive relevance and staying power. At the same time, we're applying more discipline, talent and rigor across all the other factors that drive our business. We are positioned well to continue our momentum and amplify the brand over the long term. With that, I'll pass it over to Sarah. Sarah Oughtred: Thanks, Trina. Our year-to-date performance highlights the growing potential of the FIGS story as we more closely align our product strategy with our unique ability to drive impact for healthcare professionals. We are particularly encouraged to drive this high level of execution in a year where we had both a planned headwind with our promotional repositioning as well as an unplanned headwind with tariffs. As I'll discuss, we are excited to see the progress reflected in our full-year top and bottom line expectations that have moved markedly higher the past few quarters. First, let me start with details of our strong third quarter performance. Net revenues increased 8% year-over-year to $151.7 million, ahead of our outlook of flat to up 2%. As Trina highlighted, our performance was underscored by both scrubwear growth and U.S. growth, each reaching 2-year highs as well as the extremely encouraging strength and momentum across our business as usual selling period. These indicators continue to support our successful ability in resetting our promotional strategy this year, particularly with more aggressive action planned across the back half of the year. From a measurement standpoint, average order value increased 6% to $114, primarily driven by higher average unit retail due to product mix and a higher rate of full price sales. Active customer growth has remained consistent throughout the year at plus 4%, pushing our active customer count to a company record of nearly 2.8 million. This growth comes despite our promotional reset, and we have seen momentum in our acquisition trends and sustained success in bringing lapsed customers back to the brand. We were also pleased to see our trailing 12-month measure for net revenues per active customer inflect positive for the first time in 3 years with 2% growth in the period to $209. By category, scrubwear grew 8%, representing 84% of net revenues for the period. Results were ahead of plan with strength in our core products supported by impactful color stories, strategic positioning in key styles and effective merchandising and marketing. Color launches and cadencing were successful in not only driving excitement to new offerings, but also energized our core colors. Looser-fitting silhouettes are increasingly resonating, particularly in bottoms, and we are leading and investing in these areas. Complementing our great assortment, we continue to drive cohesion with how and when we deliver and message to our customers, which is driving productivity. Non-scrubwear increased 7%, representing 16% of net revenues. We saw strong growth in underscrubs, which included new 3-quarter length versions of our popular Salta and Mercado styles and were inspired by customer feedback. Shoes rebounded from some of the executional challenges in last year's period and were supported by strong coordination with our color stories. We were excited to launch our ArchTek socks at the end of the quarter, which we believe will be a great core offering to address healthcare professional needs going forward. Notably, results also reflect the comping of some Olympics-driven newness in areas like outerwear and bags, but we remain excited with the pipeline of products in these key areas going forward. By geography, U.S. sales increased 8% to $127.3 million. This was our strongest performance over the past 9 quarters and continue to reflect balanced growth across both new and repeat customers. International net revenues increased 12%, led by particular strength in driving new customers. Headline growth was solid, but had some nuances that understated our overall strength. In particular, we had a more significant reduction in promo days relative to the U.S., which had an outsized impact on Canada and Australia, 2 of our larger markets. Nonetheless, we are excited as we look at our overall performance, including active customers up strong double digits, AOV up in all regions and ahead of the consolidated growth and fantastic business as usual growth. Gross margin for Q3 expanded 280 basis points to 69.9%. Key contributors to this year-over-year performance included lower discounts from the reduction in promotional days, improved return rates and processing, lower duties and reduced freight costs. These tailwinds were partially offset by higher tariffs. Results were significantly better than planned, driving our best quarterly performance since early 2023 with broad-based upside, including conservative sell-through assumptions of the mix of non-tariff goods and through our improved returns processing work. Our selling expense for Q3 was $35.8 million, representing 23.6% of net revenues compared to 27.5% last year. As a reminder, last year's third quarter included the majority of transition costs associated with the opening of our Arizona fulfillment center. In addition to lapping these costs, we drove continuous improvement here as we further optimize our business. We also saw improvements in shipping given our successful actions to optimize our carrier mix, improve pricing and drive strong service levels. Marketing expense for Q3 was $23.5 million, representing 15.5% of net revenues, down from 20.3% last year. The reduction in the spending rate primarily reflected lapping last year's strategic investment to outfit the Team USA medical team at the Olympic Games and efficiency in marketing spend. G&A for Q3 was $37.1 million, representing 24.5% of net revenues compared to 25.3% last year. Consistent with prior quarters, the lower G&A expense rate was primarily due to a meaningful reduction in stock-based compensation expense, partially offset by higher people costs. In total, our adjusted EBITDA for Q3 was $18.9 million with an adjusted EBITDA margin of 12.4% compared to 3.4% last year. Net income for the quarter was $8.7 million or diluted EPS of $0.05 compared to net loss of $1.7 million last year or diluted loss per share of $0.01. On our balance sheet, we finished the third quarter with a strong net cash, cash equivalents and short-term investment position of $241.5 million. Inventory increased 23% year-over-year to $151.2 million or up 20% on a unit basis. Several factors are impacting the buildup of inventory. As indicated last quarter, it starts with our action to support both product introductions and deeper investments in key styles, which we believe has helped drive some of the upside opportunity during the back half of the year. We also saw a higher-than-planned level of in-transit inventory, reflecting earlier timing given some of the process improvement we have been working to drive across the supply chain. While the gap between unit growth and dollars growth was modest during the quarter, we expect the growing impact of tariffs will contribute to a wider spread in Q4. On the capital allocation side, we did not repurchase shares this period and have $52 million available for future repurchases under our current share repurchase program. Capital expenditures for the quarter were $2.9 million, primarily related to our 3 new community hubs, and we now expect approximately $7 million for the full-year. Now turning to our updated outlook to close out the year. Full-year 2025 net revenues are now expected to grow approximately 7% year-over-year, ahead of our prior outlook of up low single digits. On top of our strong Q3 results, we see several factors supporting even better implied growth in Q4. To start, we had fantastic momentum coming out of the third quarter, starting with our hugely successful breast cancer awareness campaign and extending into our business as usual selling days. As I also mentioned, we are investing more strategically in our inventory position to ensure better availability of key products and styles. This also drives what we expect to be our best balance of new colors and styles offered year-to-date, which is also proving effective at supporting the core business. We are excited to continue to launch this newness with the same discipline that has supported our strong productivity this year. Finally, we will complete our year-long promotional reset this quarter, though do not expect the corresponding revenue drag to be as meaningful as Q3. Looking at gross margins, our full-year 2025 outlook has improved from our prior call and now expect only a modest year-over-year decline from last year's level of 67.6%. A large part of the sequential improvement comes from the Q3 upside, though we do now expect less overall drag in Q4 as well. As a reminder, we faced 2 sizable headwinds in Q4. First, we expect ramping sequential tariff pressure as more impacted goods average into our product costs. We continue to assume added tariffs of 20% in Vietnam and 15% in Jordan, which combined drive nearly all of our production. Second, we are also lapping a sizable onetime benefit from duty drawback claims in the year ago period. However, similar to Q3, we have several items that are helping offset these pressures, including lower discounts, improvements in our returns processing and freight. Additionally, we are starting to get better scale on certain styles in conjunction with demand. The full-year SG&A story continues to show strong leverage following last year's outsized investment. While Q4 is still expected to show some expense rate deleverage, the magnitude has been reduced primarily by the impact of our improved top line assumptions across each of our expense buckets. More specifically, this quarter, selling expenses should continue to benefit from our scaling efforts and tariff mitigation strategies. The marketing expense rate is planned to meaningfully increase, reflecting both lower spend rate from the prior year as well as our ramping support for the forthcoming 2026 Winter Olympics. The G&A rate will continue to reflect lower year-over-year stock-based comp, partially offset by higher planned people costs. Overall, we are updating our full-year adjusted EBITDA margin to approximately 10.3% compared to the prior range of 8.5% to 9% and ahead of the original outlook of 9% to 9.5%. We also want to provide several high-level comments that pertain to our early 2026 planning. First, on net revenues. We are committed to growing the business in 2026, which should continue to be supported by strong current momentum and ongoing process improvements. Additionally, we expect the investments we have made in our 3 emerging growth drivers, international teams and community hubs will begin to have more material impact. While not all of these factors will have linear contributions, we are excited to further unlock these businesses given our strengthening core. Next on tariff mitigation. As we have discussed, we have a number of levers across both product costs and SG&A that we have already pulled and some that remain in consideration. We have already seen strong execution as we optimize costs across inbound and outbound shipping and at our fulfillment center, benefits that we plan to extend into 2026. Our supplier negotiations have been productive and are expected to yield additional savings next year. While we do not plan to take any pricing action in 2025, it remains a lever for next year. Finally, on margins, the bar for 2025 adjusted EBITDA margins has been raised despite an estimated unmitigated tariff drag of approximately 110 basis points. However, with an estimated annualized unmitigated impact of closer to 440 basis points, we expect that the majority of tariff headwinds is still ahead of us in 2026. As such, we will use our ongoing planning process to continue monitoring the overall environment while also balancing our ongoing discipline, the full range of tariff mitigation as well as strategic investment levels. While it is too early to provide specifics, we do think it is important to note that we see opportunity for 2026 adjusted EBITDA margins to be within range of current 2025 expectations. Overall, we are energized to be in such an incredible industry where serving healthcare professionals is paramount. With improving profitability and ample balance sheet flexibility, we believe we are positioned to remain on offense and drive the sustainable long-term growth story we see ahead. I will now turn the call back over to the operator for Q&A. Operator? Operator: [Operator Instructions] First question is from the line of Bob Drbul with BTIG. Robert Drbul: Nice quarter. A couple of questions for you. Just on the gross margin performance this quarter, I guess when you look at it a little bit longer term into next year, but I would even say when you look at your historical results, given your ability to sort of navigate a lot of the tariffs, can you just talk us through how you envision that segment, that line item of the business over the next several years, I guess, at this point? Catherine Spear: Bob, yes, so we saw a really great gross margin for this quarter, up to 69.9%. Obviously, that's been quite higher than where that rate has been. We did see some components there, some that will continue into the future, but some that are unique to the quarter. We are seeing improved discount rates from the pullback in our promo strategy, and we'll see that continue into Q4 as being a benefit year-over-year. Longer term, that increase year-over-year will moderate as that promo strategy normalizes into next year. We've been working hard with our new returns partner and seen some good improvement in our refurbishment rates. Then there was a bit of nuance in how some returns processing happened with the prior year DC transition. We do expect some of those improvements in refurbishment rates to continue going forward, but not at the same rate that we saw in the quarter. We've been really working hard to optimize our inbound rates, and we saw the benefit of that this quarter, and that should continue into next year until we annualize that. Obviously, tariffs are the biggest piece, and so that will have a 440 bps total impact next year or up 330 bps. There's still some unknowns around how tariffs will remain. We'll continue to monitor that, but feeling good with our measures of how we're able to continue to find efficiencies within margin and carry that into future to continue to work on offsetting those tariffs. Operator: Next question is from the line of Rick Patel with Raymond James. Rakesh Patel: Congrats on the strong execution. Can you expand on the demand that you saw during the business as usual days when you didn't offer promotions. How is Q3 performance on those days relative to where it was in the first half? Second, given tariffs are intensifying and demand is holding up well, what do you need to see to revisit the pricing lever for next year? Catherine Spear: Great. In terms of our business as usual days, we've seen acceleration each quarter in those business as usual days. Really great to see that. It's really from the broad-based performance that we're seeing across both the U.S. and international as well as both scrubwear and non-scrubwear. Really happy with that performance, and it's really that acceleration that has had revenue growth rates overall accelerate each quarter. Really happy with what we're seeing there. Then I think you asked on pricing, and so our pricing remains consistent with what we've shared previously. Several considerations that we've shared before that still remain, which is healthcare professionals need our products to do the critical work that they do. Nearly 2/3 of our customers make under $100,000 a year. We have 16 core styles that generate the majority of our revenue. Our ability to simply flow through higher prices into new seasons or new styles is limited. We want to be prudent, and there is still some open-endedness on where tariffs will land. We've been working really hard on our tariff mitigation and these efforts include optimizing our supplier base, negotiating discounts with our suppliers and driving efficiency in inbound and outbound. The great news is that we've seen strong progress on these measures to-date. We're not going to be taking pricing in 2025. If we were to take any future pricing, that decision would be held to share with our healthcare professionals first so that we can control the narrative and deliver with the care that our healthcare professionals deserve. Operator: Next question is from the line of Brooke Roach with Goldman Sachs. Brooke Roach: Trina, Sarah, I was hoping we could discuss the trends that you're seeing in AOV, understood that some of this is coming from the promo reset, but how are you thinking about the opportunity for AOV to contribute to revenue growth as you look ahead into 2026? Similarly, can you talk a little bit about the customer trends that you're seeing? Are your customers engaging more frequently? Are they staying for longer? Are you seeing better reactivation trends or better new acquisition trends? Are you seeing any trends specifically within any age or income cohorts given the broader macro environment? Catherine Spear: Great. I'll start with the question on AOV. In terms of AOV, we've been seeing that increase each quarter and saw a fairly large increase in the current quarter, up 6%. That is driven from both mix shift in our product as well as the pullback in our promotional efforts. I think as we think about 2026, we still think there is some opportunity for AOV to continue to increase. That's largely with how we're thinking about product mix and continuing to build out that full assortment head to toe of that healthcare professional and continue to drive into a higher wallet share that we know is available to us. Sarah Oughtred: I'll just add in terms of the trends we're seeing in our consumer. Brooke, as you know, we don't -- we serve a different consumer than the average apparel or even e-commerce company. Our customer works in an industry that has a real like level of stability. People need healthcare workers. They're not going anywhere. If anything, our industry is really accelerating. It's the healthcare jobs are the fastest-growing job segment. They're growing 3x faster than the overall job market. The demand for healthcare professionals is expected to remain high. A lot of the trends that we've seen in the quarter, some of it is the fundamentals of the industry and obviously, what we're doing on the product side, on the marketing side to execute at the level that you're seeing. To your question around like the trends we're seeing, we're seeing our customers come back. If you look at repeat frequency and you kind of remove the impact of the promotional pullback, we're seeing repeat frequency up significantly. We're seeing our reactivations up significantly, and we're seeing actually cohorts performing across all income levels. Really great trends across the board. We feel really confident that the post-COVID overhang is easing, and we're operating in a much more normalized environment, and it's great to see. Operator: Next question is from the line of Matt Koranda with ROTH Capital. Matt Koranda: It's probably just a follow-up from some of the earlier questions. Just wanted to hear a little bit about what's driving the acceleration that you're implying into the fourth quarter despite the tougher comparison year-over-year. I just wanted to hear a little bit more about customer strength. It sounded just like Trina, like you just said, even your lower income cohort is still performing well. I just wanted to hear you kind of talk a little bit more about the drivers of the acceleration into the end of the year here. Sarah Oughtred: Matt, yes. I mean, we've been seeing some really broad-based and healthy trends that have continued to progress as the year has gone on and see the opportunity for that to continue into Q4. We feel good with how our product and marketing is set up for the fourth quarter. We think we can get there with continuing the trends that we've seen. We've been seeing that new customer acquisition has turned positive in terms of growth for the last 2 quarters and seeing that momentum also really come from our domestic business, which carries weight in terms of the overall growth. We're seeing some great trends in the business as usual days that has been accelerating. All of those components has been captured in how we're thinking about the fourth quarter upcoming. From a promotional perspective, our stance has still remained with how we had seen before. The improvement in revenue growth expectations from Q4 really comes from our business as usual days. No change in how we've been thinking about promo. For Q4, the focus will be on Black Friday, Cyber Monday, but similar to previous quarters, there will be a pullback in our efforts versus the prior year. Matt Koranda: Can I ask about community hubs? You guys sounded more excited, I guess, than usual about the opportunity to lean in there going into '26. Just wanted to hear a little bit more about the potential drivers of growth with Community Hub and where we are with store formats, how they're set up for growth next year. Catherine Spear: Sure. Thanks, Matt. We're really excited about our community hubs. We're about to more than double the amount that we have. We only have a community hub in Century City in Los Angeles today and in Philadelphia and Rittenhouse Square. We're about to open New York City on the Upper East side at 69th and 3rd. We're right in what's called hospital row, which is incredible. You have Memorial Sloan Kettering, you have the hospital Special Surgery, New York-Presbyterian Weill Cornell, Rockefeller. These are powerhouse healthcare institutions that are literally at the same intersection of where we are. Houston, we're opening right near Texas Medical Center, the world's largest medical complex. It has 120,000 employees, 10 million patient encounters a year, over 180,000 surgeries a year, and so Houston, incredible healthcare professional city, and it's a great place to be, and we're really excited. Finally, Chicago. We're located less than 2 miles west of the loop. We're in Illinois Medical District. It's one of the largest urban medical district clusters in the United States, 4 major hospital systems, 2 medical university campuses, 40-plus healthcare-related facilities. That's just -- those are just opening the rest of 2025, and it's November 6 today. Couldn't be more excited. We're taking our learnings from what we've seen with our first 2 hubs 40% of customers are still coming in new to the brand. 30% of customers that are coming into our community hubs are becoming omnichannel customers coming back into the stores, coming back to us online. Really strong -- and we're seeing really strong incrementality in the markets that we're in, and so took a lot of the learnings from our 2 hubs. We've redone the format, the space, how much inventory we can get on the floor, how we're approaching our color drop stories, our newness, our layering, our fit and how we can showcase that in a new and original way. Finally, customization. Everyone wants their scrubs embroidered with their name and their logo so they can tell the world who they are and what they do. These are just being in person with our community, having them feel and touch and experience our product and our brand is -- it's so amazing and so important, and we're really excited. Operator: Next question is from the line of Brian Nagel with Oppenheimer. Brian Nagel: Nice quarter. Congratulations. I've got a couple of questions. I guess one near term and then one long term. On the near-term side, as we look at the sales acceleration in the business, particularly what's happened here in the third quarter, then as you're telegraphing in the fourth quarter, to what extent is that sales acceleration being driven by new products, the new product introductions? Then my follow-up question, I guess, is longer term, a little bit longer term in nature, but now as we're watching the top line of FIGS start to solidify, you're seeing the sales growth. Is there any updated thinking on how the margin – particularly, the EBITDA margin profile of the business should evolve over time? Should we have the potential to get back to the peak operating margins? Sarah Oughtred: Great. In terms of your question on is the growth coming from new products, I mean, actually, what we're really excited to see is the majority of the growth is coming from our core products and even in our core colors. That's a great foundation for the long-term health of our business. Obviously, we've seen growth in some of our newer styles and in our color, and it's really showing that when we showcase some of that newness and innovation, it actually drives the halo effect to our overall core. Really great for us to see there that we have the ability to continue that momentum longer term from a sales growth perspective. In terms of EBITDA, for next year. For now, we've made the commitment that our adjusted EBITDA margin rate would be within range of our guide for 2025. We do have 330 bps of tariff headwind year-over-year into next year. We would be offsetting that in order to stay within range of this year. Our ability to meaningfully offset that is from improvements that we are making in the business to be more efficient, to drive into savings while still being able to invest for the longer term. We'll have some harder ability to expand margin next year just due to the tariffs. Longer term, we see the path for this foundation to continue to go forward and us for -- to drive growth, both top line and into bottom line. Operator: Next question is from the line of Dana Telsey with Telsey Group. Dana Telsey: Nice to see the progress, Trina. Two things. As you think about the Olympics coming up and the marketing for the Winter Olympics, what will be the same or different than what you did for the Olympics in Paris, knowing that summer, this is winter. What do you see as the difference? One of the interesting things in the quarter is the sequential improvement in the growth rate of the non-scrubs business, up high singles compared to the slight decline last quarter. What are you seeing there? What categories are resonating? Catherine Spear: Thank you so much, Dana. We're really excited about our continued partnership with Team USA. As you know, we're the first company ever to outfit a medical team for any country globally, and we're really proud to be able to do that again for these upcoming winter games in Milano Cortina. There's a few things that we really learned and we're going to be applying from our lessons in Paris. First one is that we're finding more ways to have an impact. We learned a lot on the ground. We've created an even better, if you can imagine, a more dedicated space at the Team USA, welcome Experience. That's really exciting. We have a brand-new fabrication called FIBERx. It's really made for healthcare professionals in more high-impact environments like what you would be doing outside in winter and especially for the medical professionals supporting our athletes during the winter games. I do believe this fabrication is going to go well beyond that to serving healthcare professionals within hospitals and offices and clinics, and it's a really, really great lightweight durable fabric that is awesome. You're going to love it. Then finally, I think we've learned a lot in terms of how to optimize our marketing spend and how to ensure that we're really balanced across the funnel. I think you've seen that throughout this year, really taking these very strong top-of-funnel marketing campaigns that, in some ways, are breaking the Internet and how do we bring that all the way down to our healthcare professionals that are on social or across channels and to meet them where they are with really strong product that serves their needs and really strong messaging that resonates and really shows the best of them back to them. I think that's what this campaign is going to do again. Then your question on non-scrubwear. In Q2, the growth rate was negative, and that was really impacted by comping over the same quarter of the prior year that had some additional non-scrubwear launches. What we've seen with category performance for non-scrubwear is that it can vary based on promotional comparisons, the impact of new styles in different quarters and our work to reinvent a few areas. Happy to see that we inflected positive in non-scrubwear this quarter. Even still, we are comping against the stronger quarter last year from where we had Olympics. We had strong accessories and outerwear growth from Olympics last year that doesn't annualize this year. I would say that our non-scrubwear did perform to our plan and has outperformed the first half. We've been happy to see consistent attachment rates and really excited about the opportunity ahead for many of the categories within non- scrubwear. Operator: Next question is from the line of Ashley Owens with KeyBanc Capital Markets. Ashley Owens: Congrats as well. Maybe just first to touch on international. With this now being 16% of revenue of the quarter, if we kind of parse that out and think of that as just shy of $100 million run rate for the business, could you just walk us through some of the next building blocks as to how you're planning to scale these regions? I know regions like Japan, South Korea are still really new. China is obviously coming on board. Would just be curious on thoughts as to if international could sustainably grow at double digits for the next several quarters and how you're thinking about that long-term mix target there? Catherine Spear: Yes. I mean we have a two-pronged strategy, Ashley, in terms of where we go broad and where we go deep. It's been really exciting to see that we'll be at 60 markets by the end of this year. That's driven by our ability to leverage both technology and our understanding of each region and use the commonalities across regions to open up markets very efficiently. If you think about we just -- in Q3, we opened up 12 new markets, Argentina, Bolivia, Chile, Ecuador, I won't list them all, but you can get that. Then in the fourth quarter, we opened up a number of countries in the Middle East and in Africa. That's really exciting. Then to your point, how do we go deep, right? That's the second part of the strategy, where once certain markets reach scale, think about Canada, Mexico, U.K., Australia, we're able to really invest more in the brand and brand awareness. Really localized deeply, deeper engagement with our ambassadors with events, in-market support and so, and having talent on the ground in these places. It's very exciting to continue to build out in both -- in newer markets, but also really go deep in these larger markets that have hit what I would call critical mass. No matter where you live, prior to FIGS, you had this horrible experience with your uniform. Our goal is to get some more healthcare professionals around the world and help change the game for them. Ashley Owens: Then just quickly to follow-up. Maybe on the return rate improvement, if you could help us contextualize how much of the progress there benefited margin for the quarter or the magnitude of the decline you saw? Then just following up, moving down the P&L, any other quantifiable cost savings from fewer restocks and reverse logistics activity that you'd be willing to share? Sarah Oughtred: Yes. Within returns, we've seen overall improvement in our return rates, and that is largely attached to some of our improvements to fit. We definitely saw an outsized benefit related to returns processing. It is quite meaningful of a bump that we saw in Q2. You can really see how the implied guidance for Q4 does step down. That's both with tariffs and mix shift into non-scrubwear that seasonally happens in Q4, and not recognizing the same degree of benefit on returns that we saw in Q2. Operator: Next question is from the line of John Kernan with TD Cowen. John Kernan: Obviously, a lot of upside to on a few line items in Q3. And I just want to go back to the prior question on the fourth quarter guidance because it does assume quite a bit of the momentum on the margin level doesn't continue. Can you just unpack the gross margin and then maybe the selling and G&A in fourth quarter and the expectations there, given you have a lot of momentum coming out of Q3 on the top line and the margin profile? Just curious what's maybe changing in Q4. Sarah Oughtred: Yes, certainly. We will have quite a step-up quarter-over-quarter from Q3 into Q4 on tariff impact. There will be quite a step-up on the incremental amount of tariffs that Q4 has to carry. That will continue to step up as we go into 2026 as a higher portion of our inventory captures the full amount of tariffs. We also have seasonality to consider, so we have a much higher proportion of our business in the fourth quarter that has non-scrubwear that carries a lower margin rate. You'll kind of see that seasonal mix if you look back at the proportion of non-scrubwear business in Q4. Planning similarly, and that will have some drag on the quarter. Then also just to consider from a year-over-year perspective, as you're looking at Q4 that we did have a sizable duty drawback benefit in the fourth quarter last year that was onetime catch-up, so we won't -- that will have a headwind into year-over-year growth in Q4 as well. Then I think you're asking in terms of the overall P&L profile. I mean, as we think about our selling costs, we've continued to see improvement there each quarter and happy with our efforts there, and that will continue into Q4. A lot of really great work that's been done to negotiate with our vendors, bring on multi-carriers and at the same time, being able to provide even better service. That will continue into Q4. From a marketing perspective, the marketing rate will increase in Q4 from what you've seen each quarter in 2025, and that's a function of us starting our investments to support the Olympics, which happened in Q1 of 2026. Then as we go into G&A, we've been continuing to see the decline in our stock comp expense year-over-year, and that trend will continue into Q4 as well. I think those are the main puts and takes on how we think about the profile for Q4. Operator: Our final question will come from the line of Angus Kelleher with Barclays. Angus Kelleher-Ferguson: This is Angus Kelleher on for Adrian. Congrats on a solid quarter. I wanted to ask how you are balancing -- how you're balancing the elevated inventory growth against the plan to pull back on promotions? What safeguards are in place there to avoid margin pressure or excess stock? I guess just more broadly, how do you feel about the composition of that inventory? Sarah Oughtred: Yes. Thanks. We've been intentionally investing in inventory to support demand and improve our core in-stock levels. We've really seen improvement in those in-stock levels, which has been supporting our sales growth. We did have an impact from higher-than-expected in-transit inventory in the quarter, which we do view as positive as it does result from the work we're doing with our partners to drive consistency and execution, and it's ultimately driving shorter lead times. If you were to adjust for that higher in-transit, our unit growth would be low double digits. So much more in line with our Q3 growth and our Q4 guide, while also giving us the opportunity to potentially capture upside. We're effectively getting product more efficiently, and we do need to adjust. As we look at the go forward, we would expect some moderation in unit growth, and that's really just as this in-transit timing adjusts. Then from a dollar growth perspective, we actually expect that to increase into the fourth quarter, and that's really a function of those tariffs impacting that inventory that's coming in, so our inventory is higher. We do have some pockets of inventory that we are working down. We've got some older fit profiles and areas we intend to reinvest in the future seasons. We have made some good progress here, including with our targeted promotional efforts and selective write-offs we were able to do. We do continue to make progress here and in the quarters ahead. We're working on improving greater discipline and efficiency to our buying process. Over time, we do expect that inventory balance to come down over 2026 despite the higher tariffs. Angus Kelleher-Ferguson: Then if I could just squeeze one last one in about Teams. How is the Teams strategy evolving? How has the target customer shifted over time there? Then just if possible, any margin commentary you could share on the contribution of that business? Catherine Spear: Well, first off, Angus, I just want to thank you for not ending on the inventory question. Thank you for adding something about Teams because I'm so excited to talk about our Teams business. It's really -- we've been really focused on investing in our Teams business as we look to ensure an optimal foundation to set us up for the future. We've talked about our outbound strategy, bringing on new institutions that are looking to standardize and brand their teams, and we've made a lot of progress. The biggest kind of item that we're excited about is the upgraded technology. We mentioned it in the earlier part of this call, and so this is really designed for healthcare teams of all types and sizes. This platform is going to give organizations much more flexibility and functionality to purchase in a way that makes sense for their team. We are on our way to becoming the employee store for all different types of healthcare professionals that's going to go well beyond traditional group ordering. This is going to introduce new capabilities like sipeins, like gifting, different types of discounts based on your employee type. We're really excited about being able to roll out this upgraded Teams experience. It's going to feature our full product assortment. It's also going to be able to support international teams customers, which hasn't been the case. We think we're going to be able to unlock meaningful growth in the future. And so -- and then you asked about the margin. Sarah Oughtred: The margin profile. The teams profitability is accretive bottom line. It has a lower gross margin profile just to the offering of a higher discount. Then operating expense structure is much more favorable with the efficiencies, both within outbound shipping as well as marketing. I'm excited with the overall economics that this business provides. Operator: There are no additional questions waiting at this time. I'll pass the call back to Trina Spear for any closing remarks. Catherine Spear: Thank you all for joining us. Really excited to speak with you all, and we'll talk again soon. Operator: That concludes the conference call. Thank you for your participation. You may now disconnect your lines.
Operator: Good afternoon, ladies and gentlemen, and welcome to the Tejon Ranch Company's Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. I will now hand you over to Nick Ortiz. Please go ahead, sir. Nicholas Ortiz: Good afternoon, and welcome to Tejon Ranch Company's Third Quarter 2025 Earnings Call. My name is Nick Ortiz. Joining me today are Matthew Walker, President and CEO; and Robert Velasquez, Senior Vice President and Chief Financial Officer. Today's press release, 10-Q and this webcast are available on our Investor Relations website. A replay will be posted after we conclude. That site is ir.tejonranch.com. Today's remarks may include forward-looking statements. These statements are made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties that could cause actual results to differ materially. Key factors are detailed in our SEC filings, including our most recent Forms 10-Q and 10-K. We assume no obligation to update any forward-looking statements. We may reference non-GAAP measures. These measures should be considered in addition to, not as a substitute for GAAP results. Reconciliations to the most directly comparable GAAP measure and reasons why we use non-GAAP are included in today's filings and are posted on our IR website. Again, it is ir.tejonranch.com. After prepared remarks, we'll address questions. Shareholders were invited to submit questions by e-mail in advance. With that, I'll turn the call over to Matt. Matthew Walker: Good afternoon. I'm Matt Walker, President and CEO of Tejon Ranch Company. I'd like to thank you for joining us on our earnings call for the third quarter of 2025. Before we get started, I want to mark this milestone and explain today's format. This is the first quarterly earnings call that Tejon Ranch has ever hosted. With it, we joined the 97% of companies listed on the New York Stock Exchange that communicate with investors in this way. Over the past 9 months, we've made it a priority to be more transparent, more consistent and more direct. With today's earnings call and next week's Investor Engagement Day in New York, we're building better ways to connect with our shareholders and talk about the business. Our call today follows the format used by many public companies, but with a few variations. About 3/4 of companies limit live questions to sell-side analysts and only a very small percentage open questions to all investors. We're providing every shareholder with the opportunity to submit questions via e-mail, and we'll be answering those live during the Q&A session. Please know that this is a work in process, and we will continue to refine and improve our format from here. Now let's talk about the quarter. We were encouraged by our farming operations, which delivered strong year-over-year improvement last quarter. Revenues increased by more than 50% and our farming segment bottom line in GAAP terms improved by $2 million as we held expenses flat and capitalized on higher production. Our farming business remains a foundational part of Tejon Ranch. It's a cash generator whose adjusted EBITDA has been positive in 11 out of the last 12 years. Farming also provides several strategic advantages. It helps us manage our water rights. It supports access to low-cost debt through our AgWest credit facility, and it produces solid returns with reasonable capital investment. We'll be talking more about our farming economic story next week. At the Tejon Ranch Commerce Center, we continue to see the power of the TRCC platform, even in a challenging market for industrial and commercial real estate. Our industrial portfolio remains 100% leased. Our commercial portfolio is 95% leased, while the outlets at Tejon maintain a 90% occupancy. Our joint ventures play a major role in driving organic growth at TRCC with our 5 industrial JVs with Majestic Realty contributing stable cash flow. TRCC as a whole remains fully leased, and our weighted average rent levels continue to climb. We're also maintaining about a 40% cost advantage to the Inland Empire West, which makes TRCC an attractive logistics solution for tenants. The TA/Petro joint venture continues to be our highest performing profit center. While reduced car and truck traffic impacted our sales last quarter, the opening of the new $600 million Hard Rock Tejon Casino in just a few days will be a real game changer. The casino should increase traffic to TRCC, benefiting all of our retail assets, including the TA Travel Centers, our retail and the outlets at Tejon. We're also expanding the TRCC platform, adding new projects that deepen its ecosystem. Terra Vista at Tejon, our first multifamily community, is heading on track towards stabilization and is now more than halfway leased. It's a milestone for the company and a key part of our long-term strategy to build a residential community around our commercial center. This starts with Terra Vista and will continue in the future with our fully entitled Grapevine master planned community, which is currently advancing through design. With that, our CFO, Robert Velasquez, will walk you through the quarter financials in more detail, and then I'll provide some additional remarks before we open it up for questions. Robert Velasquez: Thank you, Matt, and good afternoon, everyone. I'll start with a summary of the quarter's results, then walk through performance by segment and finish with a brief update on liquidity and the balance sheet. For the third quarter ended September 30, Tejon Ranch reported net income of $1.7 million or $0.06 per basic and diluted shares compared with a net loss of $1.8 million or $0.07 per share in the same period last year. Total revenues were $12 million, up 10% year-over-year, while total costs and expenses declined by nearly 5%. As Matt mentioned, the improvement in quarterly profitability was driven primarily by strong farming results, stable commercial and industrial leasing and steady performance from our mineral resources and joint venture operations. I'll turn to the performance of our individual segments, starting with real estate, commercial and industrial. In this sector, revenues increased 4% to $3.1 million, reflecting income from the continued leasing up of Terra Vista as well as additional revenues from communication leases. Those increases were partially offset by slightly lower revenue from 1967083865 due to milder summer temperatures. Operating income for this segment rose 7% to $976,000. Within our unconsolidated joint ventures, equity in earnings totaled $2.6 million. The TA/Petro partnership remains our largest single earnings contributor, generating $1.9 million in the quarter. Our 5 industrial joint ventures with Majestic Realty contributed $945,000 of earnings in the quarter, reflecting a 24% margin across the MRC buildings. Turning to mineral resources. This segment produced operating income of $1.1 million on revenues of $3.2 million, which was stable year-over-year. The business continues to require minimal capital expenditures outside of water operations. After adjusting for costs, water sales contributed $322,000 to the minerals segment's operating profit for the quarter. In farming, revenues improved by more than 50% compared to last year, while GAAP operating losses, which includes water holding costs, were reduced by 40%. The segment's rebound reflects both improved production and the advantages of how we manage our cultural costs and water resources. Last year's results were hurt by weather challenges. And with the pistachios, lack of chill hours, coupled with it being a down-bearing year, yielded no pistachios crop, but this season yields normalized across all major crops. Our integrated approach to water gives us significant flexibility. When allocations from the state water projects are high, we benefit from lower farming costs. When they're low, we're positioned to monetize our stored and contracted supplies. Moving on to ranch operations. That segment delivered consistent results with total revenues of $1.3 million and positive operating income, supported by stable [ grazing ] and gain management activities. At the corporate level, general and administrative costs declined slightly from the prior year to $2.9 million in the quarter. Consolidated operating income improved by 37% year-over-year to $3.4 million across our operating segments. Depreciation and amortization totaled $3.8 million and adjusted EBITDA for the year-to-date period was $13.9 million, up 7.3% from the same period last year. As of September 30, total assets were $630 million, up from $608 million at year-end. We ended the quarter with $21 million in cash and marketable securities and $68 million of availability under our AgWest revolving credit facility. Our total debt stood at $91.9 million, resulting in a debt to total capitalization ratio of roughly 16%. Year-to-date capital investment was $49.9 million, primarily tied to construction of Terra Vista, infrastructure at TRCC east and legal and permitting work across our master planned communities. Reimbursement proceeds from the Community Facilities District amounted to $5.6 million, offsetting the capital investments made during the year. We continue to manage capital allocation carefully, focusing on projects that enhance cash generation. In summary, the quarter reflected solid improvement in profitability, steady contributions from our recurring revenue businesses and disciplined cost control. We believe that the combination of resilient operating assets, growing rental income and the strength of our joint venture partnerships positions Tejon Ranch well as we move into 2026. I'll stop there and turn it back to Matt. Matthew Walker: Thanks, Robert. While the quarter was positive, I'd like to make something clear, Tejon Ranch is not yet where it needs to be, and we have a lot more to do to get it there. Accordingly, we've been focused intently on cost discipline to improve our operating margins. We've been scrutinizing every contract, looking for efficiencies and lower cost solutions. We've identified savings today, which will result in a far more efficient operation in the future. Additionally, our largest overhead cost is staffing. As part of our G&A review, we recently completed a workforce reduction that will save more than $2 million per year. This reduction impacted employees at all levels of the organization and lowered our headcount by 20%. It wasn't an easy decision, but it was a necessary one. These expense reductions represent a down payment on change. They demonstrate our intent to operate with discipline, accountability and a clear eye on the bottom line. In closing, we had a good quarter, but we still have a long ways to go, and we're not done yet. We look forward to sharing more of how we are positioning the company for success in the quarters and years to come. That concludes our prepared remarks. We would now like to respond to the questions that were submitted by shareholders. Please give us a minute while we pull those up. Nicholas Ortiz: Thanks, Matt. We received 20 questions via e-mail. We'll read and respond to the questions in the order that they were received. Our first question today is from [ Larry Zicklin ]. His question is, after all these years of failure, don't you think you should just sell as much land as you can and buy back stock so as to realize the maximum amounts for shareholders? Matthew Walker: Thanks for the question, Larry. Let me first emphasize that my one and only goal for our master planned communities is to create long-term shareholder value, however we get there. I do believe that a successfully implemented master planned community can generate decades of significant cash flow. You can see this with other public companies that are in our space. With that said, I understand your concern and that of other shareholders. I want to reiterate that everything is on the table. So if there is a compelling opportunity to monetize a portion of our land holdings, as you've suggested, we will evaluate it. However, for right now, I believe that with Grapevine, pursuing an implementation plan, which builds on the significant growth that we're having at TRCC makes a lot of sense. On Mountain Village, I'd like to embark on a capital raising effort to identify a joint venture partner who would contribute equity and avoid dilution to our shareholders. And on Centennial, completing a re-entitlement is the most prudent approach at this point to preserve our investment in that asset. Let me add that I will be discussing all of this in greater detail at our Investor Engagement Event next week. I know there are strong opinions about what we should do, and I would like to more fully explain our rationale to you all then. Nick? Nicholas Ortiz: Thanks, Matt. We received a series of questions from [ George Apostelkis ]. The first question is, what is the company's policy regarding the disclosure of more detailed cost information on items such as the TRCC cost to complete and the estimated costs of the first phases of planned community development. Matthew Walker: Thanks for your question, George. Let me see if I can answer it. We provide information for all of our material cash requirements. That includes capital expenditures, and we do that at the end of the latest fiscal period as we're required to do by the SEC. We also disclose our material cash requirements from our known contractual obligations. It's also worth noting that every year, we do disclose in our Annual Report our estimated cost to complete of the horizontal infrastructure for TRCC. Nicholas Ortiz: George's next question is, has the company estimated the overall capital cost of the first phases of planned community development? And will it disclose the scope, cost and related capital funding sources as well as whether or not this development might require third-party investment or purchase commitments? Matthew Walker: Okay. I've covered some of that, but let me expand on other portions of your question. So similar to my previous answer, we do provide information in our most recent SEC filings on our material cash requirements, and that includes our CapEx, as I mentioned before. We haven't yet disclosed specific capital cost estimates or project budgets for the initial development phases of any of our MPCs. Those depend on several ongoing factors, including the final design or market conditions at the time that we intend to launch them and the final infrastructure scope and cost. As it relates to the funding sources that you mentioned, the plan for all of our master planned communities, as I mentioned in the previous question, we intend to capitalize those with a third-party joint venture partner who would contribute the new equity, and we would contribute the land to that venture. And this strategy would avoid dilution to our shareholders' projects. They'd also include a capitalization with construction financing at the venture level. Nicholas Ortiz: Okay. Next question. Will the company disclose its detailed accounting policies regarding allocation of basis on the first phase of community development? Matthew Walker: Okay. So accounting for construction cost in our community development is completed in accordance with GAAP. This means that project costs like land acquisition costs or development costs, construction costs, interest, real estate taxes, certain direct overhead, things like that, those are all capitalized while those activities are in progress. Those costs are then accumulated by phase, again, in accordance with GAAP. In our Annual Report, we do have a section called the allocation of cost that provides some additional detail on that. Nicholas Ortiz: All right. Next question. Have you estimated the level of end-user absorption necessary to commence the first phases of development for the planned communities? And if so, will you disclose that estimate? Matthew Walker: So we definitely consider absorption when we're talking about proceeding with development. But more generally, we look at the entire investment holistically. So typically, absorption is slower at the beginning of a project and then it ramps up to a stabilized level over time. Each project is expected to have a joint venture partner. So that JV partner is going to be looking for an expected market rate return that they would need in order to proceed with the project. So we would expect that the equity would end up driving that return decision to proceed. We also have an internal hurdle rate to return so that we're generating a sufficient return for our shareholders. So that's how we approach the investment criteria that's necessary in order to move ahead with the project. Nicholas Ortiz: Final question from George. Based on your most up-to-date estimates and the status of negotiations with builders, will the sale of land in Phase 1 result in a book profit or book loss? Matthew Walker: Let's see, not knowing which project you're speaking about, let me speak to this more generally. I think I can cover the question. For any given master planned community, there is expected to be a material book profit for the entire project, and that would be consistent with achieving the hurdle rates that I just mentioned in your previous question. So I think you'd have a book profit for the entire project. For the first phase of development for any of our master planned communities, that phase is likely going to have a significant amount of upfront infrastructure. So the initial phase is not likely to include a book profit. I can't speak to other companies and their master planned communities, but what I just said isn't unique to Tejon Ranch. That's typical of many master planned communities where you have a multi-phase MPC. The return of capital typically occurs beyond that initial phase. Nicholas Ortiz: All right. Thanks, Matt. From [ David Spier with Nitor Capital ], we received the following questions. First question, the $2 million expense reduction is welcomed and appreciated. However, based on management's stated value of TRCC, the book value of our MPC assets and the estimated value of our cash flowing land leases and royalties, Tejon arguably has a net asset value that is north of $40 per share. Following the expense reduction and the implementation of your plan, what will our annual per share cash earnings power be? Public markets do not value non-cash flow producing assets nor assets that are not being actively monetized. So if your plan will not lead to near-term earnings power north of $2 per share, and we are not going to monetize our MPC assets in the near term, how will we make money as public shareholders? Matthew Walker: David, thanks for your question. Appreciate it. First off, we agree with you that the company is undervalued. A critical part of that value is the expectation of future returns. That future earnings potential comes in a couple of different areas. It will come from the build-out of the 11 million square feet of TRCC over time and as the market permits. We're also working to identify new revenue sources that take advantage of the unique attributes of the ranch. So there will be value, we hope that's created there. We expect that value will come from the ongoing cash flow from our existing portfolio of income-producing assets. And then -- and we're looking to find ways to increase that over time. And it will come from the development of master planned communities. Those master planned communities have the potential to generate earnings, which are in order of magnitude greater than what the company is producing today and to do that over a sustained period of time. So I believe that the combination of all of those assets will result in a material earnings per share growth. Nicholas Ortiz: Okay. One final question from David Spier. How much additional capital and how much time will it take before Mountain Village or Centennial are generating profits, returns for shareholders? Matthew Walker: Okay. I'm going to cover this in more detail next week, but let me answer it for you today in this way. On Mountain Village, as I mentioned in previous answers, I'm going to be focused on a capital raising effort in the near term over the next year or so. So the capital allocation for that will be rather modest, and it will be sized just to complete that capital raising effort. I've previously mentioned also that we're going to go out and look for a joint venture equity partner who will provide the additional equity so that we don't dilute our shareholders. That JV between Tejon and the equity partner would then complete the construction documents that would probably take 18 to 24 months. And then we break ground on the initial phase of horizontal infrastructure, and that would take 24 months or so. And then at that point, you would be initiating home site sales to builders and to custom lot buyers. At that point, there would be ongoing revenue generation. So that's a quick breakdown of -- in rough terms of the timetable for Mountain Village. You also mentioned Centennial. So on Centennial, our first step is to re-entitle the project through Los Angeles County. That would include us updating our environmental documentation. This would take, we would think, until sometime near the end of next year, plus or minus. That process of going through the county would take a couple of months after that as well. At that point, I think a lot depends on our ability to move more immediately into a mapping process and that mapping process would take a couple of years. And then with our construction documents in hand after we completed the mapping, we'd be able to commence construction, and similar to what I just described on Mountain Village, then start with the installation of the horizontal infrastructure. Given that we do have a re-entitlement effort, it's harder to estimate the outer time frames given some uncertainty to complete the entitlement process. And then that implementation phase, once we completed the entitlement, would also be done under a joint venture similar to the ones that I've described before. Hope that helps. And again, I'll be able to talk more about that next week with a little more time. Nicholas Ortiz: Thanks, Matt. From [ Justin Libos ], we received the following question. Mountain Village and Centennial have a combined book value of more than $290 million, but produce no income and consume capital. Are they worth book value or more? If so, why not sell them to unlock more than 60% of market cap, leaving Grapevine and TRCC, already valued by management above our market cap. No other lever matches this shareholder value. Why not put them up for sale? Matthew Walker: Justin, thanks for the question. So we agree with you that Mountain Village and Centennial are worth more than their book value. One comment I'd make on your net asset value. So when we were looking at that range of net asset values for TRCC and you noted that it's in excess of our current market cap. I just want you to know that, that -- when we did that exercise, that didn't include the Grapevine master planned community. It was just for the commercial assets that are part of TRCC. As I mentioned in my answer to some of the previous questions, we believe that Mountain Village and Centennial both provide significant long-term cash flow generating potential. I'll be talking, like I said before, more about that next week. And I again, just want to say that the company is always keeping its options open and evaluating all approaches to maximizing asset value. And that goes for our master planned communities or any other asset on the ranch. Nicholas Ortiz: All right. We have 6 questions from [ David Roth ]. The first one is the release says Terra Vista will increase to 228 units. Are you committed to that? Matthew Walker: Yes. Thanks for the question, David. We worked on that wording a little bit. Let me try to explain that a little bit to you. At the end of the third quarter, we had completed and delivered 180 units. Since the end of the quarter, we've now completed and delivered all 228 units, and we've now signed leases on more than half of the 228. So it was really just a timing difference on how we reported the third quarter. But to be clear, we have completed construction on the first phase of Terra Vista, which is a good accomplishment, and we're pleased. Nicholas Ortiz: The next question is, the release says you are committed to the MPCs, but you have half of TRCC available that is 100% unencumbered today. Why not focus on that TRCC, which you can control? Matthew Walker: I couldn't agree with you more. So TRCC remains our focus. I think if you've looked at how we've deployed capital over the last 5 years, the majority of it has gone to TRCC. We continue to see the value of the future there. The flywheel effect that I've talked about between our industrial and our outlets and our retail and our travel and the hotel and all the residential uses feeding off each other, that's real. The casino is only going to add to that. And the advantage of the casino is we're leveraging the $600 million that the tribe is spending to -- and that's going to help bring traffic into TRCC, which should just continue that flywheel. So I agree, I call TRCC the nucleus of our activity from which all of our growth should emanate. Nicholas Ortiz: Next question. Farming and ranch operations do not provide consistent returns. Why not lease out these assets for an annuity to the owners? Matthew Walker: It's a good, fair question. We tried to cover it in the press release. I covered it in my earlier remarks. I'll talk about it again some more next week, but let me just again answer it for you here. Taking a step back, I've heard from a lot of shareholders, many of you who have submitted questions that the focus that we should have is on generating cash flow. We agree with that. So what that means with respect to farming, we should be looking at farming through a cash flow lens, not necessarily an earnings lens. And the measure that in my effort to try to better tell the story of the company, we've mentioned in the press release our concept of an adjusted EBITDA figure. And we think that's the right way to look at the farming business. So adjusted EBITDA, as we're measuring it, it backs out non-cash expenses like depreciation, and it also accounts for the water holding costs that we're going to have to spend whether we farm the property or not. And if you do all of that and you look at farming on an adjusted EBITDA basis, as I mentioned in my earlier remarks and Robert did as well, we've generated positive cash flow from farming, and it's something like 23 out of the last 24 years. Again, I'll go through this more next week. But I do believe there is a more favorable story to tell about farming and we would be happy to have the dialogue. Nicholas Ortiz: Next question. The share price is at a 52-year low. There has never been a return of capital to owners of the company. We have assets with a lot of value and $50 million per year in cash flow. When do the owners get paid? Matthew Walker: David, I understand your frustration. The lack of share price appreciation over 52 years, it's unacceptable. I mean, what can I say? I've been here for 8 months, and I intend to change that. It's not going to happen overnight, but I want to see the share price move. And I intend to implement a plan that will achieve that. So you know we have in the past, paid a dividend, but it has been a while. So my intention is to implement a plan. It will leverage our existing balance sheet. It will utilize capital from third parties to help start growing our cash flow producing asset base. The goal of all of this is to create share price appreciation, and it's also to create cash flow so that we can ultimately allow for things like the payment of dividends again or share repurchases. So that is the end goal, and we need to find a way to get there, and I intend to do that. Nicholas Ortiz: Why do you need such a big Board of Directors? What evidence can you point to that suggests the Board has created value for shareholders? How do you calculate the returns on the MPCs after 20 years? Matthew Walker: So on the Board, I'm going to be addressing a number of governance issues next week. So if you could wait until next week, you should expect that I'll cover that topic then. I'd prefer to cover all of the governance topics at once. On the MPCs, so we look at value a couple of different ways. We do believe that given the fact that we're bringing in a third-party investor, we look at the value relative to our book value and the appreciation on that land, and we need to produce an acceptable hurdle on our cost to date. So I'll again be talking more about that next week. Nicholas Ortiz: How do you define fiduciary responsibility? And have the leadership been good stewards of our capital? Example, spending $3.5 million on a wasted proxy fight, we did not benefit. Matthew Walker: Let's see. So I define fiduciary responsibility as putting shareholders first. I'm here to create shareholder value. The management team, all of us, we're here to create value for the shareholders. And that's how I and we would like to be judged. There are many areas that I think we have been good stewards of the company's capital. I believe the significant investment that the company made in our Terra Vista apartments. I believe that, that will prove to be a very important catalyst for creating value all throughout TRCC, particularly when we look back at that in 5, 10, 15 years from now. I'd also like to be clear, I'm not afraid to admit my mistakes. There are definitely things that I would do differently. I put the contested election last spring in that category. Certainly, when you look at the results, it's hard to conclude anything else. You're right that capital could have been deployed into things which create economic value. I'll leave it at that. Nicholas Ortiz: We'll move on to questions from Richard Rudgley and Grover Wickersham from Glenbrook Capital. The first question is, given the 49.84% that voted in favor of the PFS Trust proposal to allow shareholders to call a special meeting, will this be approved by the Board of Directors as was recommended by ISS? We would appreciate a response to this question. We have previously asked it in a public letter to the Board, which letter was ignored. Matthew Walker: Thank you, Richard, and Grover for that question. So like some of the other governance topics, I don't want to be evasive, but I would like to cover governance all together. And I'd like to talk about the subject of a special meeting next week. And I'll make sure that I communicate more broadly in the event that you are able to join us so that all shareholders understand where we are headed on issues of governance. So you'll be receiving an answer to that question next week. Nicholas Ortiz: Next question is, can you please give more color on this part of the press release? Equity and earnings of unconsolidated joint ventures decreased by $1.3 million compared with the prior year period, mainly attributed to the reduction in equity and earnings recorded for the TA/Petro joint venture. Matthew Walker: Yes. That's a -- I can see the confusion with that. As Robert and I mentioned in our remarks, the earnings from our joint venture with TA/Petro, and we're a 60% partner of that. So those are driven by 3 different things. First, our fuel sales, that's both diesel, gas -- diesel and gasoline. Second, our convenience store and travel store sales. Third would be the related commercial real estate, that's mostly fast food restaurants. So there was less traffic on Interstate 5 last quarter. There's really been less traffic on the 5 for the entire year. There are any number of reasons for that and reduced port shipments has something to do with it. There's less local travel from traffic counts that we get. So all of that, when you have fewer cars getting off the freeway, whether they're cars or trucks that come into TRCC, that's going to have a cascading effect on the equity in earnings for the assets that are part of our joint venture with TA/Petro. So hopefully, that explains the nature of the reduction of our joint venture there. Unlike our Majestic industrial joint ventures where you've got a lease that from quarter-to-quarter should be constant, the TA/Petro varies according to demand. Nicholas Ortiz: Please describe the economics of the joint venture relationships in the Grapevine location and discuss what management intentions are for taking greater TRC control of the development and reducing or eliminating the joint venture split of economics. Matthew Walker: Okay. I've talked a couple of times about joint ventures. Let me summarize all of them all at once. So again, we've got 5 joint ventures with Majestic Realty on 5 different industrial buildings. Each of those is a 50-50 joint venture. The outlets at Tejon, that's also a 50-50 joint venture, and we have that with Rockefeller. And then I just mentioned the 60-40 joint venture that we've got with TA/Petro. We've got good joint venture partners. Going forward, as we look at the remaining 11.1 million square feet left to develop, I would expect us to develop more real estate at TRCC on our own balance sheet. But given that, I do want to be clear, we look at each opportunity individually. So it's based on a whole bunch of different factors. But I do understand the question, capturing 100% of the revenue as part of our asset base is helpful for the long-term growth of our cash flow in the future. Nicholas Ortiz: Great. Final question for this portion. Given the apparent success of the apartment development near Grapevine and the potential demand from Hard Rock Casino employees, is management contemplating either additional apartments or townhouses? Matthew Walker: So that's a good question. The short answer is yes. I mean we definitely have plans to build more residential at TRCC, and that includes multifamily housing. It also includes the single-family homes in the Grapevine master planned community. So we've now -- as I mentioned before, we've completed 228 units in our first phase at Terra Vista. The second phase is entitled for an additional -- it's like 170 units. So as you mentioned in your question, we have, in fact, seen demand for our apartments for the casino employees. We've been working pretty closely with Hard Rock to encourage their employees to consider us. It's been a good partnership, and they haven't yet even opened their doors. So those are capital allocation decisions and return hurdle decisions that we are exploring every single day on where to deploy our capital. But the short answer is, yes, we expect to develop more residential around TRCC. Nicholas Ortiz: And then we have 2 questions from [ John Christensen ]. The first question is, if a buyer would put in a formal written bid to buy Mountain Village at the current book value, would the company sell it? Matthew Walker: Good question, John. Thanks for asking. A couple of things. As I previously noted, I'll say all options are on the table. So if a reputable party made a substantive offer, I would be obligated to bring that offer to the Board to consider. With that said, as I noted before, we believe that the property is worth more than book. So I'll just leave it at that. But we're flexible, and we're looking at alternatives, but we have a plan in place. Nicholas Ortiz: The company cut $2 million from overhead. Was $1 million of that, the consulting cost being paid to the previous CEO? Matthew Walker: No. So the $2 million of savings came entirely from the reduction of staffing costs from our existing staff that's been on hand from the time that I took over as CEO, not from other -- any other savings would be in addition or separate from that. Nicholas Ortiz: And with that, Matt, that is the last question. Matthew Walker: Great. Well, thank you all very much. Nicholas Ortiz: All right. That concludes Tejon Ranch Company's third quarter 2025 earnings call. On behalf of the management team here, thank you for joining us. For a recording of today's call or more information, please visit ir.tejonranch.com. Goodbye. Operator: Thank you. Ladies and gentlemen, that concludes today's event. Thank you for attending, and you may now disconnect your lines.
Operator: Greetings, and welcome to the Xponential Fitness, Inc. Third Quarter 2025 Earnings Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Patricia Nir. Thank you. You may begin. Patricia Nir: Thank you, operator. Good afternoon, and thank you all for joining our conference call to discuss Xponential Fitness' Third Quarter 2025 Financial results. I am joined by Mike Nuzzo, Chief Executive Officer; and John Meloun, Chief Financial Officer. A recording of this call will be posted on the Investors section of our website at investor.xponential.com. We remind you that during this conference call, we will make certain forward-looking statements, including discussions of our business outlook and financial projections. These forward-looking statements are based on management's current expectations and involve risks and uncertainties that could cause our actual results to differ materially from such expectations. For a more detailed description of these risks and uncertainties, please refer to our annual report on Form 10-K for the year ended December 31, 2024, filed with the SEC and subsequent filings with the SEC. We assume no obligations to update the information provided on today's call. In addition, we will be discussing certain non-GAAP financial measures in this conference call. We use non-GAAP measures because we believe they provide useful information about their operating performance that should be considered by investors in conjunction with the GAAP measures that we provide. A reconciliation of these non-GAAP measures to comparable GAAP measures is included in the earnings release that was issued earlier today prior to this call and in the investor presentation available on our website. Please note that all numbers reported in today's prepared remarks refer to global figures, unless otherwise noted. As a reminder, in order to ensure period-over-period comparability and consistent with our reporting method since IPO, we present all KPIs on a pro forma basis, meaning, for the full KPI history presented, we only include brands that are under our ownership as of the current reporting period. For the period ended September 30, 2025, this includes BFT, Club Pilates, Pure Barre, StretchLab, and Yoga6. I will now turn the call over to Mike Nuzzo, CEO of Xponential Fitness. Michael Nuzzo: Thanks, Patricia, and good afternoon, everyone. First, I'd like to thank the entire Xponential family for welcoming me on board. As I said when I started, Xponential is uniquely positioned to thrive as a successful consumer business. Having completed my first 90 days, I've had the opportunity to deep dive into our business, connect with many of you and gain a clear understanding of both our strengths and the areas where we can improve. This period has reinforced my belief in the power of our brands and the dedication of our franchisees. I want to again highlight 3 foundational elements: First, Xponential is in a great space. Boutique fitness has substantial momentum and long-term growth potential as consumers continue to invest more in their health and wellness routines. Second, Xponential has strong studio brands, which are loved by members and led by passionate and committed franchisees. Third, Xponential has made progress in building a team and a supporting foundation to start driving stronger growth and financial returns. Importantly, given the 3 recent divestitures, we have a more optimized brand portfolio. With this, I am convinced we can provide better franchisee support with a more appropriate level of infrastructure consistent with our smaller brand portfolio. I'll discuss recent actions we have been taking to address this. Let me walk through these elements in more detail. First, the industry. It is estimated that a record 247 million Americans engage in an exercise routine in 2024, up by over 25 million from just 2019 and representing the 11th consecutive year of growth. Within the space, the global boutique fitness market is expected to reach $60 billion by 2030, fueled by a growing demand among all age groups for specialized community-focused experiences. The sector's emphasis on holistic health and strong engagement will likely continue to fuel growth that outpaces the overall fitness industry. These trends bode well for Xponential. Secondly, we have strong brands and an excellent network of franchisees. I have spent time with many of our franchisees over these past few months and their commitment to driving their local businesses, ultimately fueling our success is clear. Each of our brands has unique attributes that contribute to their performance. Club Pilates with over 1,200 locations across North America and over 150 locations internationally is our flagship brand and the scaled leader in the category. Club Pilates studios generate the strongest new unit economics I have ever seen. For example, our recent 2 vintages of Club Pilates openings, the 2023 and 2024 cohorts have shown record year 1 revenue ramps, exceeding the previous 3 vintages at month 12 by an average of 27%. This demonstrates the brand's continued popularity and significant growth opportunity ahead. Yoga6 and Pure Barre are complementary studio concepts that have a healthy owner-operator franchisee structure and continue to generate impressive sustained organic growth. They both also exhibit strong retention driven by an almost obsessive member base, which we love, of course. StretchLab and BFT have all the attributes to return to and exceed their historical levels of performance. BFT, born in Australia, has a compelling offering in the high-intensity interval training space. Currently, we have a cross-functional team focused on refining our go-to-market approach in the U.S. to drive better individual studio economics, member awareness and market density. StretchLab's assisted stretch model is a great complementary addition to a weekly workout routine. I've experienced the benefit firsthand. After exhibiting solid AUVs a few years ago, recent StretchLab revenue trends have been pressured as Medicare Advantage plans, a strong source of member flow, have scaled back on stretch as a covered benefit. Based on what I've learned, there are meaningful opportunities to improve every element that impacts member acquisition and retention. I expect us to make steady progress across both brands as we position for 2026. Importantly, following the recent divestitures of CycleBar, Rumble and Lindora, we now have a more streamlined brand portfolio, which brings me to my third key area of focus and probably the most significant opportunity for the company. While Xponential has a foundation in place to support franchisees and members, there is substantial opportunity to improve without adding additional cost. The 5 major areas of focus are: marketing, operations support, unit growth and licensing, innovation and efficiencies and cost savings. I have been dedicating significant time to strengthening each of these core functions within a more streamlined portfolio. This is not about adding additional cost. Rather, it's reallocating and refining how we operate to drive greater focus and efficiency. Let me walk you through each aspect of our tactical approach. First, in the area of marketing. Our new leadership team in marketing is enhancing our corporate capabilities in digital media, CRM, search and social to augment franchisee local marketing efforts. We have launched a pricing study focused first on Club Pilates, which will serve as a framework for our other concepts. All our corporate brand websites are being refreshed to improve our member journey from initial contact to conversion and retention. We are also addressing lead management system and process deficiencies to help strengthen our top-of-funnel KPIs across our portfolio. In the fourth quarter, we are making additional marketing fund investments to launch a national brand campaign for Club Pilates, expanding our reach through new performance channels like podcasts, YouTube TV and CTV. Overall, we are improving our corporate marketing engine with a clear focus to drive organic growth. These improvements are designed to help support our brands optimize performance and strengthen our connection with both prospective and existing members. Second, operations support. We launched our initial field support teams with a laser-focused mission to provide best practices to studios and franchisees on all the ways to enhance local studio financial performance. We are working closely with franchisees to gather feedback, improve processes, refine our approach and ensure these teams are effectively supporting our studios. On the retail front, the transition to the outsourced model is well underway. We expect the implementation to be largely complete by year-end, and we are looking forward to delivering a much more efficient retail experience for both our corporate teams and franchisees. In the area of unit growth and licensing, we've made swift progress in ramping up our improved real estate and license sales support capabilities. We are working closely with a leading outsourced partner in franchise real estate to implement best-in-class site selection practices, including leveraging the latest AI-powered market assessment tools. These improvements are designed to ensure we're making smart, data-driven decisions that support long-term success. In addition, we are taking steps to attract more established operators, along with private equity into the existing franchisee base, particularly for Club Pilates. I'm also excited to share that during Q3, we successfully completed the franchise disclosure documents registration process across brands and states. In international markets, we continue to add locations focused on Club Pilates and BFT, and I look forward to working with the team on ways to accelerate our growth within key strategic geographies in both Europe and Asia. On the innovation front, we are focused on generating new class content and member engagement within our current portfolio and see substantial upside within each of the brands. For example, in Club Pilates, we recently launched our first new class in several years, Circuit, which incorporates more intense athletic movements while still being accessible to even beginners. In Yoga6, we are refining our class offering menu for 2026. Both Circuit and new planned classes in Yoga6 will have appeal across age groups and feature strong social media attributes. This month, we also defined a new Club Pilates studio design, a big request from our franchisees. At a corporate level, we are making sure that our innovation and marketing teams are closely aligned, such that new content continuously fuels the marketing engine, driving engagement and retention. I believe we are just scratching the surface with our abilities to bring innovative leadership to the space. Finally, efficiencies and cost savings. One of my key learnings these past 90 days was that we needed to move quickly to rightsize our corporate organization, both as a result of the divestitures and in an effort to more broadly streamline the organization. As a result, in October, we executed a reduction in force across most of our corporate departments, which was a difficult but necessary task. This is expected to result in annualized SG&A savings of about $6 million. We will continue to identify ways to optimize our operations while upholding our commitment to providing the best service to our franchisees and members. I want to be clear that the initiatives here are clearly multifaceted. While we are acting with the requisite immediacy, the full impacts will unfold over the ensuing quarters. We intend to measure progress and adjust as needed, ensuring that the changes we implement are both effective and sustainable. With that, I'll turn the call over to John. John? John Meloun: Thank you, Mike. Good afternoon, everyone. We ended the quarter with 3,066 global open studios. This quarter, we opened 78 gross new studios, 57 in North America and 21 internationally. There were 32 global studio closures in the third quarter or about 1%, representing an annualized closure rate of 4%. In the third quarter, the company sold 49 licenses, of which 16 were in North America and 33 were international. Our base of licenses sold and contractually obligated to open is over 1,000 studios in North America, and we also have over 700 international master franchise obligations. Approximately 40% of our global licenses are over 12 months behind their applicable development schedules. Third quarter North America system-wide sales were $432.2 million, up 10% year-over-year. This was driven primarily by growth from net new studio openings. Notably, about 90% of system-wide sales growth came from a higher mix of actively paying members with the remainder driven by higher pricing and mix shifts. Same-store sales were down 0.8% for the quarter and up 5.4% on a 2-year stack basis. Same-store sales trends in Q3 were driven by a confluence of factors, and we are in the process of examining them in detail. At a high level, we've identified lead flow and member conversion issues across the portfolio that we are working to address, some of which were likely accentuated by our implementation of additional member privacy safeguards earlier this year. At a more granular level, StretchLab continues to be impacted in part by brand positioning challenges and the Medicare Advantage coverage reductions. Meanwhile, at Club Pilates, as you all know, we are benefiting from a stronger sales ramp in newer cohorts. While this is great for studio economics, it means that recent cohorts are already near capacity when they enter the same-store sales calculation, translating to lower same-store sales contributions. As Mike alluded to, we are reviewing all elements of corporate and studio-level operations to compete better and more profitably. Our North America run rate average unit volumes climbed to 668,000 in the third quarter, up 2% from $654,000 in the prior year period. The increase in AUVs was largely driven by a higher number of actively paying members and higher pricing for new members. Given the consistent level of demand for our brands and Club Pilates in particular, we believe there is an incremental opportunity to increase revenues through enhanced pricing methodologies, including new price tiers, disciplined cancellation policies and new package offerings. On a consolidated basis, revenue for the quarter was $78.8 million, down 2% or $1.7 million from $80.5 million in the prior year period. 73% of revenue for the quarter was recurring, which we define as including all revenue streams, except for franchise territory revenues and equipment revenues, given these materially occur upfront before the studio opens. Franchise revenue for the quarter rose 17% year-over-year or $7.4 million to $51.9 million, driven primarily by the catching up of franchise territory license terminations and by royalty revenues given a higher effective royalty rate driven by new studio openings. The company will continue to terminate licenses at elevated levels in the fourth quarter, noting terminations can take time given requirements around notification time lines. Equipment revenue was $7.5 million, down 49% year-over-year or $7.2 million, reflecting a 41% decline in global installation volume compared to the prior year period. Merchandise revenue of $4.8 million was down 27% year-over-year or $1.8 million, reflecting lower sales volumes. As a reminder, in Q4, we will begin the implementation of our outsourced retail strategy with FitCo, which is expected to contribute improved margin expansion in 2026 and further optimize non-core operations and reduce working capital commitments. Franchise marketing fund revenue was $8.8 million, an increase of 3% year-over-year or $0.3 million, primarily due to continued growth in system-wide sales in North America and increased average unit volumes from our installed base of studios. Lastly, other service revenue, which includes sales generated from rebates from processing studio system-wide sales, brand access partnerships, company-owned studios, XPASS and XPLUS amongst other items, was $5.9 million, down 6% or $0.4 million. The decrease was primarily due to lower brand access fees. Turning to our operating expenses for the quarter. Cost of product revenue were $10.2 million, down 41% or $7 million year-over-year. The decrease was primarily driven by the lower volume of equipment installations and merchandise sales during the period. Cost of franchise and service revenue were $7 million, up 45% or $2.2 million year-over-year. The increase was largely driven by the increased recognition of associated commission expenses from the catching up of franchise territory license terminations. Selling, general and administrative expenses were $24.7 million, down 47% or $21.5 million year-over-year. The decrease in SG&A was primarily lower due to a decrease in legal expenses driven by non-recurring insurance reimbursement and lower restructuring charges from lease liability settlements. During the quarter, we received $10 million in cash reimbursement from our professional insurance policies related to the SEC investigation that was concluded without action in July as well as other defense costs from other active inquiries. There was an additional $10 million insurance receivable recorded for SEC investigation and franchise matters as of the end of the quarter, noting that the receipt of these recovery payments in future periods will have no impact to GAAP earnings or EBITDA. At present, through the third quarter, we have entered into and paid lease settlement agreements of approximately $32.7 million. As of September 30, 2025, we have approximately $8.8 million of lease liabilities yet to be settled. We expect most of the remaining liabilities will be settled during the remainder of 2025. Depreciation and amortization expenses were $3.7 million, down 13% or $0.5 million compared to the prior year period. Marketing fund expenses were $9 million, up 40% or $2.6 million year-over-year, afforded by higher system-wide sales and associated marketing fund revenue contributions. Acquisition and transaction expenses were $3.1 million, down 16% or $0.6 million from the prior year period. This includes the contingent consideration activity, which is related to the Rumble acquisition earn-out and is driven by the share price at quarter end. We mark-to-market the earnout each quarter and adjust our accruals accordingly. Note that this earn-out will persist despite the recent divestiture of the brand. We recorded net loss of $6.7 million in the third quarter or a loss of $0.18 per basic share compared to a net loss of $18.1 million or a net loss of $0.29 per basic share in the prior year period. We continue to believe that adjusted net income is a more useful way to measure the performance of our business. A reconciliation of net income and loss to adjusted net income and loss is provided in our earnings press release. Adjusted net income for the third quarter was $19.3 million or adjusted net income of $0.36 per basic share on a share count of 35.1 million shares of Class A common stock. Adjusted EBITDA was $33.5 million in the third quarter, up 9% or $2.7 million compared to $30.8 million in the prior year period, primarily driven by increased margin from license terminations and increased royalties in our franchise revenues. Adjusted EBITDA margin was 42% in the quarter, up from 38% in the prior year period. Turning to the balance sheet. As of September 30, 2025, cash, cash equivalents and restricted cash were $41.5 million, up from $32.7 million as of December 31, 2024. For the 9 months ended September 30, 2025, net cash provided by operating activities was $17.6 million, which includes $2.8 million in lease settlements. Net cash used in investing activities was $2.3 million with $4.3 million used to purchase property and equipment and intangible assets, offset by $2 million in proceeds from disposition of brands. Net cash used in financing activities was $6.6 million, which primarily includes $5.9 million in net borrowings on long-term debt, $5.7 million in payments on preferred stock dividends, $3.4 million payments on promissory note liability and $2.3 million in payments for taxes related to net share settlement of restricted stock units. Total long-term debt was $376.4 million as of September 30, 2025, compared to $352.4 million as of December 31, 2024. The net increase in total long-term debt is largely due to the company drawing additional debt in the first quarter of 2025 for general working capital purposes and associated fees, offset by quarterly principal payments. As previously communicated, the company is actively exploring multiple work streams to refinance our term loan in advance of its coming current in May of 2026. Let's now turn to our outlook for 2025. We are reiterating guidance for net new studio openings, revenue and adjusted EBITDA. We are taking a more conservative approach to North American system-wide sales given current business conditions and to account for the divestiture of Lindora. Note that guidance and year-over-year comparisons for system-wide sales and net new studio openings exclude CycleBar, Lindora and Rumble in both periods for comparability. We now project North America system-wide sales to range from $1.73 billion to $1.75 billion, representing a 12% increase at the midpoint. We continue to expect 2025 global net new studio openings, which is net of closures, to be in the range of 170 to 190, representing a 37% decrease at the midpoint from the prior year. We expect the number of closures to be approximately 5% of the global system this year as a percentage of total open studios. Total 2025 revenue is expected to be between $300 million and $310 million, unchanged from previous guidance and representing a 5% year-over-year decrease at the midpoint of our guided range. Adjusted EBITDA is expected to range from $106 million to $111 million, unchanged from the previous guidance and representing a 7% year-over-year decrease at the midpoint of our guided range. This range translates into a 35.6% adjusted EBITDA margin at the midpoint. We continue to expect total SG&A to range from $130 million to $140 million. When further excluding the one-time lease restructuring charges, brand divestitures and regulatory legal defense expenses, we are expecting SG&A of $110 million to $115 million and a range of $95 million to $100 million when further excluding stock-based costs. As a reminder, in the fourth quarter, the company hosts its annual franchise conference, which has a net $3.7 million expense in the period. Regarding marketing fund, in the fourth quarter, we expect to see marketing fund spend exceed marketing fund revenue by approximately $5 million, largely driven by the nationwide branding campaign for Club Pilates. In terms of capital expenditure, we now anticipate approximately $6 million to $8 million for the year or approximately 2% of revenue at the midpoint. This compares to previous guidance of $10 million to $12 million or approximately 4% of revenue at the midpoint. For the full year, we continue to expect our tax rate to be mid- to high single digits, share count for purposes of earnings per share calculation to be 34.8 million and $1.9 million in quarterly cash dividends related to our convertible preferred stock. A full explanation of our share count calculation and associated pro forma EPS and adjusted EPS calculations can be found in the tables at the end of our earnings press release as well as our corporate structure and capitalization FAQ on our investor website. We continue to anticipate our unlevered free cash flow conversion to be approximately 90% of adjusted EBITDA as we require minimal capital expenditure to grow the business. We continue to expect that our anticipated interest expense in 2025 will be approximately $49 million, tax expenses to now be approximately $5 million, including the cash usage for tax receivable agreement and tax distributions to pre-IPO LLC members and approximately $8 million in cash dividend related to our convertible preferred stock, resulting in levered adjusted EBITDA cash flow conversion of approximately 35%. This concludes today's prepared remarks. Thank you all for your time today. We will now open the call for questions. Operator? Operator: [Operator Instructions] Our first question comes from the line of Chris O'Cull with Stifel. Christopher O'Cull: John, I know Club Pilates comps had moderated last quarter, I think, to the mid-single-digit range. Can you provide an update on how that played out in the third quarter and then maybe current trends you're seeing in Club Pilates specifically? John Meloun: Thanks, Chris. Yes. In Q2 of 2025, it moderated closer to the mid-single digit, which we said was around 5%. In Q3, we did see it come into the low single digit or about 1% in the third quarter. As we explained on the call, what we're really seeing is your installed base of studios now getting to what we believe is a full maturity given the current operating structure and number of members and pricing that they have, which is around about $1 million AUV. As we add new units, what we're seeing is these new units are coming on pretty efficiently and getting up to that kind of, let's call it, $900,000 to $1 million AUV very early in the first 12 months of operation, which means as they move into the 13-plus month, they're not really comping like they used to because now the whole system is almost at that $1 million AUV. That's one of the phenomenons that we're talking about is just the efficiencies of the ramp in Club Pilates. Because they're at full capacity, they're not really comping beyond the $1 million. Michael Nuzzo: Yes, Chris, and I'll add a couple of points as well. Yes, it's a great brand. Obviously, strong AUVs and a great ramp, high productivity. We should still expect to grow organically. Obviously, we're happy with where we were in the first half of the year. I would say that in an increasingly competitive space, we have to do better at helping our franchisees compete better. In the script, we talked about a lot of the areas that we're focused on. John and I also called out some of the deficiencies in our lead generation and member conversion capabilities, and we're focused on addressing those. Beyond that, we've got to up our game in marketing and studio ops support. I think the team is galvanized around that, and we're excited to support what is a really great brand. Christopher O'Cull: That leads to my follow-up question though is given that Club Pilates is at record high utilization, I guess, and that you're looking into this enhanced, I think you call it enhanced pricing strategies to drive revenue. I guess my question is 2 parts. First, how do you balance the push for higher prices with the risk of alienating members in a more unpredictable, let's say, macro environment? Then secondly, instead of focusing on pricing, how much opportunity is there to drive growth to fill the significant off-peak capacity hours that exist, I guess, outside of the morning and evening rush? John Meloun: Yes. I think you're hitting on a couple of really important topics. I think the quick answer is the best way to do it is to bring in an expert who has done pricing analyses and work and support for brands across the country. That's exactly what we kicked off in the quarter. I've worked with this group in the past. I think what they do a really good job of is really digging into the data in a way where we're getting into deep analysis around the members and the usage and the packages and the pricing structure. It's a very multifaceted approach. It's just not saying, take our tiers and increase them by a specific fixed amount. We're really getting into the science of this. We're also getting some great feedback from our franchisees, and taking their observations and their learnings at the local studio level. I expect we'll come out with a really thoughtful approach to pricing and packages and intro promotions to maximizing the use of our studios. I'm excited about this work, and I think it's definitely something that will help us in 2026. Operator: Our next question comes from the line of Randy Konik with Jefferies. Randal Konik: Mike, can you expand upon -- I think you said some sort of comment about private equity entering more into the franchisee base. Can you just give us some perspective on what that would entail, what brands, what geographies? What are you trying to -- what do you kind of envision for that? Then I know this -- you talked a little bit about in response to another question around this pricing kind of looking into it. What work is being done around density and thinking through what is the appropriate distance to have Club Pilates from another Club Pilates, specific to Club Pilates, I should say, because it just seems like there's just a lot more ground that can be covered with more units per se, maybe not just or instead of kind of tweaking some of the pricing because it sounds like, obviously, these boxes are very productive. Maybe they are reaching maturity, but that would just argue for more units to be put in closer proximity to other units. Just give us your thoughts on how you're thinking about those 2 areas, the private equity and the density question. Michael Nuzzo: Yes. Thanks, Randy. You're hitting on the 2 topics that occupy the unit growth part of our strategy and the team. As far as PE, I would say that specifically in Club Pilates, we've had some really great experiences with larger scale operators and I think in general, we are looking to grow with the operators we have and potentially look at opportunities to bring in larger scale operators to other geographies in the U.S. Private equity has done very well in this space, and so we're having really good productive conversations with them. I'm happy with what the team is doing on that front. There may still also be opportunities with the other brands around larger scale operators, and we certainly are looking into that as well. On the real estate side, this is what I was specifically referencing when it comes to partnering with an experienced third-party real estate partner and the use of pretty sophisticated location selection technologies so that we can feel good about being able to place studios in proximity to other studios, but still not having the negative impact of meaningful cannibalization. You're probably familiar, there are a lot of great systems out there. We feel like we've got one that will work really well for us and be able to allow us to maximize our network of studios within specific geographies. Randal Konik: Then last question, just give us your philosophy on portfolio construction. I think, look, investors that I speak to generally welcome the paring back of the portfolio, skinning down the number of concepts and modalities that the company has. Do you feel like this is the right set of concepts? Do you think about potential more pardowns in the future? Just kind of what -- give us your kind of sense on where we are with the portfolio and any changes that need to be made or not made. John Meloun: Yes. I won't speak to any future considerations. I'm obviously still learning about each of the brands. I do agree that having a smaller portfolio like we have today and the divestitures that we've done have helped us and will help us. It will allow us to be more focused as we ramp up a lot of the business capabilities that I was talking about. I also see a lot of complementary aspects to the portfolio that we have. I see a lot of opportunities around leveraging best-in-class things that are happening in one brand and applying them to another brand. I think pricing is a good example of that. I'm happy with the portfolio we have. I think we've done some really good work around the divestiture side, and I'm excited to dive in with each of the brands to drive growth into 2026. Operator: Our next question comes from the line of John Heinbockel with Guggenheim Partners. John Heinbockel: Mike, when you guys talk with franchisees about the Club Pilates economic model, is the assumption still sort of the old ramp as opposed to this ramp quickly to $1 million AUV? Because obviously, if that's true, in theory, I guess, you could go into -- you could pay more rent, you could absorb more cost, but there'd be no guarantee that you stay at $1 million AUV. How has the sort of the model changed or it's not, if this ramp holds, it's upside to ROI? Michael Nuzzo: Well, I think that the ramping that we've seen is a function of the brand and the strength of the brand. It's a function of having really, really strong franchisee presale activity that we have developed and refined and improved over years, right? As a scaled business, we're just -- we're getting a lot of things right on the execution around new studio build. I think that's great. I think that it's all relative, right, based upon the studio where you open it. I feel like we can show improvement with each new class of studio openings. From a modeling standpoint, the work that the real estate team is doing, especially around the new systems that we're putting in place, are adjusting accordingly and making changes to the ramp that help us make more intelligent decisions on site locations. We'll continue to refine it, and we'll continue to just get better-and-better. I still think there's opportunity around how we do our launch marketing, for example. I think -- but it's a good problem to have, right, when you have to modify your model for obviously a better start-up. John Heinbockel: Maybe as a follow-up on the retail ops field consultants. Where are you with that ramp? Then now that you've whittled down to 5 brands, obviously, they can concentrate on fewer brands, fewer issues, but where do you see -- and I guess it wouldn't be Club Pilates, but where do you see the biggest opportunity to fix execution gaps probably across brands? John Meloun: Yes. The field team right now is about 20, and we'll be doing a few more over the next couple of months. They are going to be working directly with our franchisees and our studios around a system called ProfitKeeper. The focus of that is how to improve studio level economics. I know when you start out with something, it always morphs into something that's a little different and a little better and a little evolved. I anticipate this doing the same thing. I also think there's an opportunity, and I've seen this in other retail settings and studio settings, and you've probably seen it, too, where you can identify opportunity, in this case, opportunity studios and you can focus their attention, of course, supporting all of the brands and all of the units, but around a very defined group of studios that you know has the potential to perform better and create some analysis, some feedback, even some friendly competition that makes a system like that work pretty well. Operator: Our next question comes from the line of Joe Altobello with Raymond James. Joseph Altobello: I guess first question on Club Pilates. What's the purpose of the national ad campaign? I ask that because normally, you're looking to build brand awareness, right? You've already got pretty high brand awareness, I would think, and you already have record high utilization. Do you guys see more upside to that utilization rate? Michael Nuzzo: This was talked about when I first started, and I dug in with the team, and we've modified the approach a little bit. Most of what will be hitting on the brand campaign will take place over Q4. The way I would think about it is it is us putting incremental dollars to certainly a creative part of it, but around new channels that we typically do not use in performance marketing. We identified some of those channels. Some of them are traditional media, some of them are new media, CTV, YouTube, podcasts, so what I really like about it, and I think this is going to help us as we get into 2026, is we'll be able to understand the efficacy of each of these investments in these new channels, and then what it provides for us is new ways as we get into the year, if we want to put more dollars behind a particular brand, we know the channels that have the best chance to perform. I think that's what we're really getting as a huge benefit from this work. Joseph Altobello: Just to clarify, so there are benefits to other brands. This is testing around marketing concepts behind Club Pilates, but it could have benefits for StretchLab, etc.? Michael Nuzzo: Well, this particular campaign is solely for Club Pilates. I think what I was trying to communicate was it will be testing out channels and the efficiency and the effectiveness of new channels that we currently haven't done much work in. That learning will help us if we want to apply this investment or apply these channels to other brands as we get into 2026. Joseph Altobello: Just to follow-up on that. John, earlier, you mentioned 40% or so of your backlog is still 12 months behind on a development schedule. How does the accounting work for that in the fourth quarter? Because if I look at your EBITDA guide, obviously, you're calling for a pretty sharp decline year-over-year in the fourth quarter. How should we think about that accounting impact? John Meloun: Yes. When you do a termination -- well, first, when you sell a license, the full balance of the license sale, the price goes on to the balance sheet as deferred revenue. If you pay any commissions, the commissions get deferred as a cost as well. When you terminate the license, what that does is it immediately accelerates the full amount of the license that has been deferred from a revenue perspective and commission to the P&L. In the third quarter, there was a large margin impact or margin benefit, I should say, related to the accelerated termination of licenses. As you move into the fourth quarter, the steep decline based off of the guide is really being contributed by a couple of factors. One is, there will not be a repeat level of terminations in the fourth quarter that there was in the third quarter, and that will be -- that's around about a $4 million, I guess, you can call it headwind into the fourth quarter. In addition to that, as a reminder, we have about a $4 million expense impact in the fourth quarter related to our franchise conference as spend that we do to hold that event. Then as Mike mentioned, the marketing fund dollars, which is about $5 million for the Club Pilates brand awareness, that is also a headwind into the fourth quarter. The convention in the marketing fund, you can probably consider one-time within the sequential quarters. That's about an $8 million number. As you kind of think of a $33 million adjusted EBITDA number in the third quarter, and you can kind of get to where the guide is by adding an additional $8 million of convention costs and marketing fund spend in the fourth quarter. There will be heightened elevations again -- or terminations again in the fourth quarter, but not to the magnitude that we saw in Q3. Operator: Our next question comes from the line of Jonathan Komp with Baird. Jonathan Komp: John, if I could just follow-up on the last point. I think I heard it, was it $4 million of benefit from terminations in Q3? Then if 40% are still non-current, that seems like a pretty high number, maybe like $900 million or so. Could you share any insight on sort of the outlook for those? Can you get any of those back to current? Any view of why the 40% hasn't come down? I think that's been a consistent number as you have been terminating some. John Meloun: Yes. Thanks, Jon, for that. Yes. I mean when you look at the delinquency of the backlog, one of the things that occurred during COVID was pretty much everything went delinquent, right? Because there was any licenses that was sold prior to COVID, there was about a 2-year period where franchisees were kind of waiting on the sidelines with signing new leases and such because of the fact that there was a shutdown of studios. There was a natural kind of delinquency in our backlog. Earlier this year, we stopped terminating licenses while our new COO came in and did a full assessment of franchisees by brand, where they stand. The terminations we have done are an output of that work where we have gone through with franchisees and identified which ones are not moving forward and made those terminations. When you compare the sold but not open backlog from Q2 to the ending Q3, we have significantly reduced the number of licenses that were delinquent, but the percentage that is still delinquent within the brands we still own is still around 40%. When you think about the brands where -- or the composition of the delinquent, let's call it -- the total remaining backlog is about 1,800. About 44% of that backlog is Club Pilates. We feel very strongly that those franchisees are going to move forward. The other 20% is in StretchLab. Yoga6 is about 12%, Pure Barre is about 5 and then your BFT is about 20%. We have seen a lot of growth in Club Pilates. We do believe those units will be online. They're just delinquent from the development schedule when they originally bought the license. The StretchLab is a function of AUV performance as well. As we can continue to get the AUV up in StretchLab, we should start seeing those franchisees move forward. One thing you have to remember, too, John, is we did pro forma the licenses. It is comparable with the brands that we own to the prior year, but -- or the prior period. I do believe that the backlog in addition, when we look at it at Q4, that the backlog, you'll see that there will be some more licenses terminated and that percentage over time will start to come down through terminations, but also with franchisees moving forward. Long answer, but by kind of just organic default around COVID, the backlog naturally just kind of got put into a delinquent state, but it doesn't mean that the licenses won't get open at some point. It's just that they're moving forward on a delinquent schedule. Jonathan Komp: Then maybe to follow-up, John, for the fourth quarter, any help you can give in terms of just bridging comps, system sales and revenue that you're expecting? There's still a fairly wide range on those? Then just, Mike, bigger picture, could you maybe talk about some of the key metrics that you're targeting to watch the progress initially here? Any further detail on when you would expect to start to see some progress around the key initiatives you're watching? John Meloun: Yes. As far as system-wide sales is concerned, I mean, we still guided to the $1.73 billion to $1.75 billion for system-wide sales. You can assume that the system-wide sales sequentially will be up from Q3. One of the benefits with system-wide sales in the fourth quarter is we do run promotional Black Friday marketing programs to drive package sales to drive new memberships in the fourth quarter. You will sequentially see system-wide sales up. As far as comp is concerned, with Q3 being a negative 1% comp, we are expecting to see 0 to low single digit from a comp perspective. It all depends on the successfulness of the marketing programs in the fourth quarter and how they play themselves out. As far as revenue is concerned from Q3 to Q4, there's a couple of things at play. One is, you will sequentially see overall revenue down from Q3 to Q4. The reason why, again, is the fact that you won't have the benefit of the heightened terminations in the third quarter or fourth quarter that you had in the third quarter. That's going to be the main driving force for overall revenue being down. We do expect to see royalty production up in the fourth quarter, but it's just the one-time terminations that are going to drive down revenue in Q4, but year-over-year, we do expect revenue to be up. We did about $44.5 million -- excuse me, $80 million in Q3 of '24. We're relatively in line with that for Q4 of this year. Michael Nuzzo: Yes. On the KPI question, the good news about a business like this is it's got some pretty straightforward KPIs. Weekly, we're looking at leads, new members, classes, retail sales, cancellations, average studio sales on a year-over-year basis each week, and we look at it compared to the previous 4 weeks and 8 weeks. We're getting a sense for momentum and where we stand. We're in a pretty good rhythm when it comes to measuring the business and addressing it. John Meloun: John, let me correct what I just said too. The revenue in Q3 of 2024 is around $80 million. Adjusted for the terminations, you're probably going to be down sequentially from Q3 of '24 to Q4 of '25. Operator: Our next question comes from the line of Ryan Mayers with Lake Street Capital. Ryan Meyers: First one for me, just kind of on the topic of innovation that you guys are looking to drive at some of the concepts. Is this a concept-wide nationwide thing? Is it more so just specific franchisees at certain locations maybe need help driving member growth? Just kind of walk us through some of the innovation there and how we should be thinking about that? Michael Nuzzo: Yes, Ryan, good question. When it comes to class content, we approach it from a nationwide rollout standpoint. Again, we'll test and we'll perfect and we'll get it to the point where we're ready to launch it, but we will launch it on a nationwide basis, understanding that some franchisees may not be able to implement it right at the time that we launch it. The other thing that we'll increasingly do is have that innovation work feed our marketing and driving awareness around new class content is a great way to do it. This is something that I think all the brands will benefit from, and we'll put together a schedule for each of them to dive into it next year. Ryan Meyers: Then just on the topic of pricing, I mean, how should we think about what the membership churn currently is and maybe more specifically at Club Pilates, where you guys are looking to drive price and then maybe just kind of the concept as a whole, just so we can think about sort of the membership base that potentially is turning out there? Is it elevated? Or what's kind of that historical level there? John Meloun: Ryan, I'll take that one. As far as Club Pilates is concerned, we haven't seen a shift in cancellations or churn within the brand. It's a trend that's remained fairly stable. I think what you're starting to see is just the actual total member per studio. It is up when you look at it compared to prior -- the same quarter prior year, but it's just kind of getting to that capacity where we're not adding at the same rate that we did historically. Churn overall has remained stable. Even when you look at memberships where they've been temporarily frozen, haven't seen any real shift in that either. It's more of a top of the funnel kind of just, I guess, signal that is the rate of growth has kind of slowed down a little bit. Overall members per studio has remained fairly constant. Operator: Our next question comes from the line of Richard Magnusen with B. Riley Securities. Richard Magnusen: This is regarding StretchLab. Could you provide maybe more details on your efforts to replace the loss of Medicare visitors, the money that they brought in? What has worked so far to replace that lost revenue? Then you earlier call -- earlier in the year, you mentioned looking at ways to reduce the ratio of stretch instructors to visitors because it tends to be very heavy in that particular metric. I wonder what you've done there and what success you've had? Then finally, have you looked at maybe other ways of including that modality with other modalities to maybe reduce overhead or get more people interested in it? Michael Nuzzo: Yes, Richard, good question. Yes, you're right. We touched on the Medicare Advantage issue. I would just say that we have to drive an expanded membership mix. As we looked at the current membership base, I think there's a lot of opportunity to drive younger member across more athletic pursuits, new partnerships. All these are areas where the offering as it stands today should really resonate. Also, there's a chance to -- or there's an opportunity to drive business from folks who just want to purchase individual stretches but not a full membership. I think there's an opportunity there. Then also from just overall supporting the brand better, we're looking at pricing intro packages, performance marketing, the online journey, which I think needs some work and local activation. There are a lot of things we're doing around membership expansion in that concept. From an operation standpoint, we're also testing a few operational adjustments that will lighten the demand on the labor side within the box. Not in a position to give any specific results of that work, but we are diving in for sure. Operator: Our next question comes from the line of Owen Rickert with Northland Capital Markets. Owen Rickert: Quickly, what are you hearing from franchisees about potential pressures in areas like labor, occupancy or instructor availability? If you are hearing anything from them, how are you helping them mitigate these challenges? Michael Nuzzo: I don't think we're hearing a lot more necessarily. I think that it's a constant challenge just to doing business. Most of our franchisees, I think, do a really great job of addressing it and balancing it. The availability of instructors is something that I think we've heard on an ongoing basis. One of the things that I think we do really well, especially within the Club Pilates system is we've got a pretty extensive instructor training program that helps to obviously feed our studios, which is great. We're looking for ways to potentially expand that in the future, which is really good. I also think that having the field people engage with the studios around this ProfitKeeper system, I think, can help, especially on the cost side and the profitability side. I mean, I think we'll be helping them to address it, but nothing of note that's been raised more so recently. Operator: We have reached the end of the question-and-answer session. I would like to turn the floor back over to Mike Nuzzo for closing remarks. Michael Nuzzo: Well, thanks, everybody, for joining today's call. We look forward to connecting with many of our franchisees. We have our annual convention in Las Vegas in the next couple of weeks, and we look for more opportunities to give you insight on the business. Thanks a lot. Operator: This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
Operator: Good morning, and welcome to the Air France-KLM Third Quarter 2025 Results Presentation. Today's conference is being recorded. At this time, I would like to turn the conference over to Benjamin Smith, CEO; and Steven Zaat, CFO. Please go ahead, sir. Benjamin Smith: Okay. Thank you. Good morning, everyone, and thank you for joining us today for the presentation of Air France-KLM's third-quarter results. As usual, I'll start by sharing the key highlights of the quarter, and then I'll hand it over to our CFO, Steven Zaat, who will walk you through the financial results in more detail. I'll return at the end with a few concluding remarks before we open the floor for any questions you might have. This quarter once again demonstrates the resilience of our business model in a challenging environment. In the third quarter, Air France-KLM delivered a stable operating margin of 13.1%, with revenues increasing by 3% year-over-year to EUR 9.2 billion, supported by a 5% increase in passenger traffic, which reached 29.2 million passengers. The passenger network unit revenue was up 0.5% at constant currency, driven by continued strong demand for premium cabins, which I will elaborate on later. Meanwhile, our maintenance business also made a solid contribution. We managed to limit our unit cost increase to 1.3% despite higher airport and air traffic control charges. As a result, operating income improved by EUR 23 million year-over-year to EUR 1.2 billion. Our balance sheet remains robust with leverage at 1.6x. Year-to-date recurring adjusted operating free cash flow reached EUR 700 million, confirming our ability to combine financial discipline with continued investment in our future. Finally, fleet renewal continues to advance with new generation aircraft now representing nearly 1/3 of the fleet, up 8 points compared to a year ago. Now moving to Slide 5. For those of you who are following the deck here. One of this quarter's key highlights is the continued success of our loyalty program, Flying Blue, which has been named the world's best airline loyalty program by point.me for the second year in a row. This distinction reflects the trust of over 30 million members and underscores Flying Blue's growing role in strengthening our connection with customers. Flying Blue remains a powerful driver of loyalty and commercial performance, and its global recognition is a testament to the value and quality of the experience that we deliver. Let's turn now to Slide 5. We're pursuing the implementation of our premiumization road map across the group with concrete improvement throughout the customer journey. On board, we're rolling out our latest long-haul business cabins at both Air France-KLM and KLM's premium comfort class is now featured on more routes. Starting in September, Air France has been introducing high-speed Starlink WiFi on board, available free of charge in every cabin, a first for any major European airline. Almost 30 aircraft have already been equipped, and we expect 30% of the Air France fleet to feature this service by the end of 2025. In addition, we are continuing to enhance the customer experience across multiple touch points. This includes upgraded premium lounges with recent improvements in Chicago and Boston, and an enriched dining offer featuring new signature dishes from Michelin star chefs on U.S. departures and a simplified customer journey from check-in to boarding. A new exclusive ground experience has also been introduced at Los Angeles, for La Prem customers, and I'm also particularly proud to highlight that our fully redesigned La Premal cabin will be available on the Paris City G2 Miami route starting November 10, after following a very, very successful launch on our flights to New York JFK, Singapore, and Los Angeles. Altogether, these initiatives elevate the quality of our product, reinforce our positioning in the premium travel segment, and support our path to higher value revenues. Moving to Slide 6. As you can see from this slide, the mix of our long-haul cabins is gradually shifting toward higher value premium segments. At Air France, the share of La Première and business seats set to increase from 12% in 2022 to 13% by 2028, while premium economy, now rebranded as premium, will rise from 8% to 10%. At KLM, the trend is even more pronounced. Premium comfort introduced in 2022 is expected to expand to 10% of seats by 2028, while the business cabin segment will grow from 10% to 12%. In other words, by 2028, almost 1 in 4 seats across our long-haul fleet will be in premium cabins. This structural shift aligns with our longer-term strategy to strengthen our brand positioning, reflecting evolving customer demand, improving revenue quality, and enhancing the value proposition for long-haul travelers. Turning to our network. We are continuing to expand connectivity across all key markets. This winter, the group will operate a broad network across all regions with balanced capacity growth. In Asia and the Middle East, Air France will serve Phuket, Thailand, while KLM will add Hyderabad, India, to its network. In the Caribbean, Air France will launch services to Punta Cana in the Dominican Republic and KLM will introduce flights to Barbados. Across Europe, KLM is opening Kittilä in Northern Finland, while Transavia is launching new services from Deauville (Normandy) and Madinah Saudi Arabia, and Marsa Alam, Egypt will also be added. And Transavia will increase flights to Morocco, Egypt, and Finland's Lapland region as well. Looking ahead, Air France will launch flights to Las Vegas in summer 2026, further strengthening our North American offering. Altogether, these additions illustrate how Air France-KLM continues to grow strategically, improving connectivity, reinforcing its position in key markets, and maintaining a well-balanced portfolio of routes. With that, I'll now hand it over to Steven, who will walk you through the detailed financial results. Steven Zaat: Yes. Good morning, everybody, and thanks for taking the time to listen to us. I think we can say it was a tough quarter in the third quarter, especially from a revenue perspective. The impact of the situation in the U.S. regarding FISA and immigration rules starts to hurt our lower-yield segment in the long haul. And I think also the warm summer didn't help our European network and Transavia. And then on top, we had ATC strikes in July, we had ground strikes at KLM, and then all the impact from the taxes and charges which we get in France from the TSBA, and at Schiphol, the charges of the lending fees and the increase of our security charges. I think we had last year, we had, let's say, the Olympics. So I think if you look at the tailwinds, which we should have from the Olympics, a big part has been absorbed by these headwinds in this quarter. If we look at the margin, you see a stable margin of around 13%, which is the same as we had last year. On the unit revenue, if you're excluding currency, we are at minus 0.5%. And the unit cost, we had quite well under control. I guided you already that we will be at the lower end of the 1% to 3%. So we are very close now to the 1%. And if you include also the fuel benefit, you will see that actually our unit cost is coming down with 0.2%. So let's say, unit revenues and unit costs are stabilizing each other in this quarter. If you look at the left and you look at the net result, you see that it looks down year-over-year, but it comes that we had an unrealized foreign exchange result last year of more than EUR 100 million. So if you take that out on the net result, we actually improved, and we are now at an equity level above EUR 2 billion. If you go business by business, and I will come back on the 0.5% unit revenue on passenger business on the next slide, you have to see at the cargo that we see a minus 5% in unit revenues. This is related to the fact that we had more freighters in maintenance. So we plan more maintenance for our freighters at Schiphol, and it extended also more than what we expected. So this is quite a big impact on our unit revenue. If you look at the cargo contribution to our P&L, it's more or less flattish. So it's also, let's say, benefiting from a unit cost perspective over there, absorbing actually the unit revenue decline in the cargo. On Transavia, we grew capacity 13.8%, 15% in France, and 12.5% in the Netherlands. In France by taking over the slots of Air France in Orly, and in the Netherlands by upgauging our fleet. That had an impact on our unit revenue, which is down minus 2.8%. And I think also that the warm weather didn't help our local business due to the fact that the appetite to travel probably when it's hot, it's less when it is raining dogs and cats outside. So we have a stable result of Transavia of around EUR 217 million. The maintenance business performed quite well, an increase of 13% of our revenues despite the lower USD, especially on engines and components, we start growing the business. We are now at an order book of EUR 10.4 billion. We increased our order book by EUR 1.7 billion compared to the beginning of the last year. So we are strengthening this business segment. And you see also that the results are improving quarter-over-quarter now with an operating margin of 6.3%. So a very good performance on the maintenance business, where we also start to recover at the components business to drive up our margin. If we then go to Page 11, let's start with Air France. Of course, there was the Olympics last year, but we also had the DSBA impact and the ATC strikes. And all in all, Air France improved the result by EUR 67 million, having now an operating margin of 14%. KLM is especially impacted by the lower yield demand, and this lower yield, especially on the long haul impacts the unit revenues of KLM. And on top of it, we have the increase of the triple tariffs, which is really hurting KLM, including also the security charges, which are going up. So I think these 2 impacts actually explains all the KLM decline despite the fact that we continue with our back on track. And you see later that on the productivity side, the unit costs are getting better under control. And also, we see that we are getting very close to, let's say, the low limit of our guidance, and especially a big contribution coming from the productivity. On Flying Blue, a stable result of around EUR 54 million. We had last year, we -- first of all, Flying Blue is impacted by the dollar because we sell miles in the U.S. And on top of it, we had very cheap seats available for flying routes during the Olympics. So that has a positive impact, let's say, on the miles cost and which we don't have this quarter, but I think it was a very strong quarter. We grew the business again with 10.5% and the business operating margin of 24% is contributing as we expected to our business model. If we then go to Page 12, then you see the big difference, and we took out now also the premium economy. You see that there's a big difference between the premium traffic and the lower-yield economy traffic. So in the first business, we increased our load factor. We increased our capacity. We increased our yield. On the premium economy, we even increased our capacity with 10%, while at the same time, increasing the ticket prices by 5.4%. And then on the economy, there, you see it's starting to hurt. It is minus 1.5% in terms of yield and also a lower load factor. Although the load factor is still 91%, you see that it is more difficult to fill the seats. If you look, for instance, on our traffic on the North Atlantic to the U.S., there is minus 10% lower passengers from India, for instance, which is all related to the immigration rules in the U.S. If you go over the world, you see still that North America on itself is not doing that bad. We have a 2.7% increase in yield, especially driven again by the first and business class and the premium economy and also by the very strong point of sale in the U.S. Latin America is still strong, 2.8% up in yield. And we see also that in the Caribbean and Indian Ocean, we could increase our yields year-over-year. And on the long or the outlayer is a bit Africa, where we see that we have a gap on the load factor, which is especially again related to the, let's say, the political situation in Africa. but also the connecting traffic to the U.S. where there is less traffic from Africa to the U.S. due to all the immigration rules. And on the right, you see a quite positive trend on Asia, up 4.4% in yield. So we are doing quite well in that segment with a limited growth of 1.7%. On the right, you see again Transavia, which I already explained. So this is minus 2.7%. And you see this hot summer had an impact on our short and medium-haul, which was more or less flattish year-over-year. If we then go to Page 10, you see we guided you that we would be at the lower end of the 1 to 3. So we are very close to the 1 now. That will also be the case in the next quarter. We see that the unit costs are coming down as productivity is kicking in. But of course, the premiumization, which contributes 0. 6% to our unit cost, and also this increased ATC charges and the significant increase of the airport charges, especially in Amsterdam that drives actually the cost here still. But our own unit cost, which we can directly influence, you see that the labor price is compensated by 1.3% on unit cost on productivity. And then on the operations, it's still going up 0.8%, mainly driven also that we have expensive ground, and also on the maintenance side, is still quite a difficult environment. So -- but all in all, good to see that the unit cost, excluding the ATC charges and the premiumization are more or less flattish, and we see also a positive trend towards Q4. On Page 14, you see the cash flow. So a big jump positively in terms of operating free cash flow. We had a EUR 1.5 billion, where we were last year at EUR 28 million. Then we still have there in there around EUR 400 million of deferred social charges and Wax. And if you take these exceptionals and you take also the payment of the lease debt, you see that we are now at a recurring adjusted operating free cash flow of more than EUR 700 million, where last year, we were at EUR 23 million. And if you look at the right, you see that the net debt is coming up. Of course, these exceptionals of EUR 400 million are added actually at the end of the day to our net debt. And we had -- let's say, we signed a lease contract on the 787-9, where we extended the leases till the period 2033 and 2035, which had a EUR 300 million impact on our modified lease debt. But of course, that has not an impact in the coming period on our free cash flow because we continue to operate these profitable planes. If we then go to Page 15, you see that the leverage is down now at 1.6. We have EUR 9.5 billion of cash at hand, which is very stable over the year, which is well above the EUR 6 billion to EUR 8 billion target. We launched very successfully a bond of EUR 500 million vanilla for 5 years with a coupon of 3.75%. We had the lowest credit spread ever in our history of Air France-KLM. So we are extremely proud of that. And we continue to simplify our balance sheet. So we redeemed Apollo for EUR 500 million in July. We issued a new hybrid into the market, but we will also pay back the EUR 300 million of our hybrid convertible bond in the market. So in total, we are reducing this hybrid stock with EUR 300 million this year. And that with a net result generation, we see that we have continued to strengthen our balance sheet where we're now above the EUR 2 billion of equity. Let's then go to the outlook, and let's start with the forward bookings. We see that there is a gap of 3% in the long haul, 2% in the medium haul, and 4% at Transact. We have seen this every quarter. At the end of the day, we were always able to almost close completely this gap. So that is also, let's say, that is a little bit the trend that we see now in our industry. To give you a bit of an indication, if we look at the first 28 days of October, we see a unit revenue increase of 2%, excluding currency impact, with a load factor gap of 1%. And we see again a difference between premium traffic, including premium economy and the low-yielding classes in the overall long-haul network, giving confidence on our premiumization strategy. Then also, I will, for one time, also guide you on the cargo because usually, I not do that because I think we don't have a lot of bookings in -- but we had a very exceptional situation last year where we had a positive impact of the front-loading, especially related to the U.S. elections in the fourth quarter. I already indicated in our last call that the Q4 cargo unit revenues would be negative. And for the first 4 weeks of October, we see a decrease in unit revenue of 11%. Although cargo has a very short booking window than the passenger business, and it's difficult to predict the unit revenues. But in our internal forecast, we expect a double-digit decline in unit revenues compared to last year for the fourth quarter. If we then go to Page 18 on the hedge, so you see that we have hedged now 70% of '25 and 50% of '26. We are quite stable in our fuel bill. I think we last time indicated $6.9 billion, and we are now at $6.9 billion. So a very stable fuel price, if you look at it over quarter to quarter. It can go up and down during the weeks, but I think we are now reaching a kind of normal plateau for the fuel price. If we then go to Page 19 on the capacity. So we still aim at a capacity of 3% to 5% on the long haul, 3% to 5% on the short and medium haul and Transavia, especially because we had a very strong operations in the third quarter. We expect to be above 10% for the full year. But overall, we still guide at 4% to 5% versus 2024. On Page 20, you see the outlook, and it is every quarter the same. It becomes a bit boring maybe. So group capacity, 4% to 5%. Unit cost, I'm very confident in the low single-digit increase where we will see in the fourth quarter that we had a very low side of this guidance. So we are comfortable for the full year on this low single-digit increase in unit cost. Net CapEx between EUR 3.2 billion to EUR 3.4 billion, also probably more at the low end of the bandwidth and net debt current EBITDA, we will keep that between 1.5 and [indiscernible]. Then we strengthened further our position in Canada. We have a very strong cooperation with WestJet, which is the second largest airline with a leading market position in Western Canada. We already have since 2009, a codeshare and a loyalty program with them. And it's interesting to see that they are the #6 partner of our Air France-KLM-enabled revenues. So next time when we do all to Chris, I will invite you to tell me who are the #2, 3, 4 and 5. Number one, you can easily guess, but it's interesting to see that they drive really up our revenue. So we were happy that together with Delta and Korean Air, we could lock them in for our business, and we took a stake of 2.3%, solidifying our, let's say, integrated way of working with Delta and securing our position in Canada. With that, I hand over to Ben for the final remarks. Benjamin Smith: Thanks, Steven. And just to summarize and conclude the comments that we just made. So Q3, again, was a mixed quarter, softer leisure demand and operational headwinds, but we're pleased that revenue -- there was revenue growth and a stable margin, which clearly shows that we've got a resilient, well-balanced network, strong cash generation, and the outlook is reconfirmed. So altogether, these results demonstrate Air France-KLM's ability to navigate challenges resiliently while building a stronger position for the future. So thank you for your time and attention. We're now available to answer any of your questions. Operator: [Operator Instructions] Our first question today comes from the line of Jarrod Castle from UBS. Jarrod Castle: I'll ask 3, please. Just quite interested to get any thoughts that you might have at the moment on at least the direction of ex-fuel costs going into 2026. Secondly, any impact from the U.S. shutdown on your North Atlantic? I see they're going to reduce the amount of capacity flying in the U.S. Is this more domestic in your view? Or will it have an impact on international? And then lastly, just the current French economic/political backdrop. If you could just go through some of your thoughts in terms of what these budgetary pressures might mean for your business. Steven Zaat: I will take the first question, and I will take the second and the third question. Yes. So we are currently busy with our budget for 2026. But we -- of course, we -- you know we are back on track. We have the same actually measures also at Air France. So we are driving our productivity further. So let's see where that will end when I come back with the guidance for 2026, but we are, of course, aiming if you look at the full year to be lower than where we were this year. You see every quarter, the unit cost development is coming down, which has strengthened our position also for the next year. But we have to define our full year budget before I will guide you on any number. Benjamin Smith: Jared, so the U.S. shutdown from the information we received this morning, it's only going to impact domestic flights and that international flights as of today should be business as usual. On the political side in the Netherlands and in France, the main focuses for us are will there be any additional taxes or charges imposed on customers, passengers, or us directly or airports. So far, we don't see anything different or new from what we've been -- what we've seen already and what we've been lobbying to change or get rid of. Again, one of the big negatives that impact us in France are the air traffic controller strikes. So far, we don't have any visibility for the rest of the year. So we're hoping that things will stay stable. We have a new head of the government body, which oversees the air traffic controllers. He is quite close to the file. It's the #1 file today. So we're hopeful there will be some improvement because it cost us a lot of money this quarter and a lot of money this year. And the operating -- the operational impact that we're experiencing is much worse. This is in France, much worse than any other country in Europe. And so far in the Netherlands, it's a bit too early to tell whether there will be any change in policy towards aviation. Operator: The next question comes from the line of Stephen Furlong from Davy. Stephen Furlong: Maybe, Steven, you can just talk about what's going on in cargo. Sometimes historically, it's been a leading indicator, but I just like to understand because I haven't seen that level of decline from other airlines. And then Ben, maybe can you talk about Orly how the work is going there? And obviously, as you build up an entirely largely Transavia business there, I'd be interested in that. Steven Zaat: Yes, let's say, the booking window of cargo is very short. So that is always difficult to predict. as I gave you the numbers for October because I think I want to be totally transparent where we are currently. I think we will be in that range also, let's say, for the coming months. But it's very difficult to exactly explain. But we saw last year that there was a lot of upfront loading towards the U.S. in expectations for what would be the outcome of the election. So that has first already before the elections, it started. And then, of course, when Trump came into the White House or at least he was elected to be in the White House. In January, there was a lot of front-loading in that quarter. So Q4, if you still remember, we had a very good unit revenue on the cargo level, and that is going to normalize. So on itself, the demand is not weak. I think it is normal, and it's, of course, better than in the other quarters. But I think the year-over-year difference is quite difficult due to the fact that we have this positive situation in the fourth quarter last year. Benjamin Smith: Stephen, regarding Orly, if you look at the overall Air France Group, so Air France and Transavia and Hub, which is the regional carrier. So excluding the rest of the business units in Air France-KLM. So just Air France Group, we're extremely pleased with the performance of the Air France Group despite all the challenges we're having with the air traffic controllers and the rest of the operations and taxes that are being imposed specifically in France. So with respect to Transavia at Orly, it has to be taken in context with the entire Air France Group performance because we have been progressively shifting slots from Air France to Transavia. So we have half of the capacity, 50% of the slots at Orly, which is about 150 departures. And we operate about 1/3 of those in 2018 were operated by Transavia, and the rest by Air France, our regional operator, Air France Hop. Those slots there are being transferred to Transavia, and the totality of those slots will have been transferred to Transavia by April of next year. On many of those flights, it's a significant upgauge. If you take a hop aircraft, as an example, of 70 seats, and you're going to a 737 or an A320neo above 180 seats, it's a big jump. And we're cutting our domestic capacity by double digits. And so those slots are being redirected to new routes in Europe. And to start up a new route takes some time, but we do have a very, very strong position at Orly, and we do have our loyalty program, and we do have a cost structure that's similar to the competitors that we are going up against at Orly Airport. So the strategy we're quite pleased with. What is difficult to measure or to at least report out on is how the benefits flow between Transavia and Air France. So Air France has been able to shed the bulk of its domestic operation to date, and it will be the entire domestic operation in April. And that, of course, will be transferred to a lower operating unit, which is Transavia, and we will significantly reduce capacity. This being done in a very complex -- this is a project that should have been done 30 years ago. It was very, very difficult to put this into place. It impacts a lot of employees, a lot of unions are involved with this. And to be able to balance this out by saying, okay, Transavia is going to be profitable or not. I think for me, if we can get the overall Air France group along the path that we've committed to the market to get it to an 8% margin, we're on the path. Is it being divided correctly between Transavia and Air France with this transfer? I'll give you an example, whenever there is an air traffic controller strike to protect the long-haul flying, which is our #1 moneymaker, we try to shift the impact of the strikes to or the airport to impact Transavia as an example. So they take that of an example of a negative like a strike. So I think it's unfortunately, we're not able to put all that into our disclosure into our press releases. But I think that that kind of level of detail, I think if we were able to share that or we have the time to share that, it would be -- I think it would be acceptably well understood that the strategy is the right one. But it has to be looked at in context with the rest of the Air France group performance, which, as you know, over the last 2 years, we've been hitting record COI results. Operator: Our next question comes from the line of Harry Gowers from JPMorgan. Harry Gowers: A couple of questions from me. First one, Steven, I think you gave the plus 2% unit revenue remarks for October, which was for the passenger network. So maybe -- the network business, sorry. So maybe you could give us what you saw in Transavia specifically? Second question, I mean, just in terms of the French ticket tax increase, the Schiphol tariff increases, clearly, these are external headwinds, which are impacting passenger demand to a certain extent for Air France specifically. So anything you can do at all to try and offset or minimize those impacts on demand? And then third question, just on the costs. Do we have any idea yet, or any visibility on where like airport tariff increases could go in 2026? Steven Zaat: Harry, let me come back on your questions and maybe Beck will follow up on it. So let's first start on the unit revenues in -- on Transavia, I don't have any number, to be honest, on Transavia yet. So we always wait for the full closing, which we are going to do, and on the passenger business because it's the main part of our business. I get the daily report. So I have those figures actually always up to date. But I didn't hear any negative news for the moment. And probably as we see bigger demand in October, probably related also due to holidays, I expect that also to come from Transavia. On the Schiphol tariff, yes, it is a very terrible situation, what we are seeing there. We know that Sriol was the #9 in terms of cost in Europe. We could develop very strongly our connecting traffic. And of course, the fact that they increased so much the tariff, and we are a connecting airline. So we need to have lower cost than our competition. So we are working on that. So first, we are working on it in what we call back on track. And you see the productivity measures are kicking in now in our unit cost to get that down also to compensate all those increased charges, which we get at Schiphol. But -- and we have to review also what we are going to do with KLM, what is the right model, and we are working on that also close with, let's say, the Schiphol management because we cannot go on like this. The first indication, which you asked what is the airport tariffs are going to do. So at least the good news is that they are not going up, but they went already with more than 40%, but they are not going up in '26. For Schiphol, I don't have the indication for ADP yet, but usually, they are much more modest in the last years. Operator: The next question comes from the line of James Goodall from Rothschild & Co Redburn. James Goodall: So 3 for me, please, as well. So just coming back to the 2% unit revenue increase in October. Is there any color that you can give us in terms of how that's trending by region? Secondly, coming back to that chart on Page 6 on the increasing premium mix, assuming that there's sort of flat yields over the course of the next 3 years, can you give us an indication of what the RASK accretion just in terms of mix would be from that premium cabin growth over the course of the next 3 years? And then finally, with Leverage now sub-2x liquidity is well above target. And I guess with a very positive direction for free cash flow generation as the exceptionals roll through and with EBIT expansion on the back of your medium-term targets. Have you guys started to think about any potential use of that free cash flow? I guess you haven't paid a dividend since, I think, pre-GFC. Is there any potential in that restarting? Steven Zaat: So very good question. Let's first start with the coloring of October. So I think I already indicated that premium was much -- doing much better than, let's say, the lower-yielding segment. We see a very strong unit revenue actually in North America, and actually all over the world on the long haul, it is pretty strong. On, let's say, the European side, it is still going up, but it is not as strong as we are seeing on the long haul. So you could say that it is, let's say, 3% on the long haul and 1% approximately or even -- yes, 1% on the European network. So still the driving force is the long haul and the driving force is the premium traffic. Yes, that's a very good question. We are just building again the budget for that, but I would say it is around 1% increase of unit revenue. That looks modest, but it is directly -- it will bring a margin up with 1%. So I would say you have part which is in the unit revenue, but also part which is in the unit cost. And I would say, if I have to give an indication in arid because I don't have exact numbers here, I would give that it would bring at least 1% in margins on those networks. Then on the cash flow, so yes, we have indeed a very strong cash position, and we are driving up now our cash flow. We will use that to pay off our hybrids because the hybrids are more expensive than, let's say, a normal Fin loan, as you have seen what we did in August. So the first thing for the short term and the short term is for me '26 is to further pay off our hybrid stock. We have EUR 500 million to pay to Apollo next year, and we will pay that from our own cash flow. That's at least if the situation stays where we are today. And then I think the moment of dividend is more when we end actually, the era that we don't have this payback of the social charges in France and the wage tax in the Netherlands. So that's more for that time horizon. But it's not now, let's say, to disclose to the whole world. We need to first discuss that with the Board because we didn't have these discussions with the Board so far. Operator: [Operator Instructions] The next question comes from the line of Antoine Madre from Bernstein. Antoine Madre: Two questions, please. So first one regarding back on track for KLM. You mentioned the productivity is improving. So is it going faster than what you planned? And can we still expect EUR 450 million improvement this year? And second one on maintenance outlook. How do you see the current headwinds impacting tariff, FX, and issue? Steven Zaat: To start with back on track. So we are still see this contribution of back on track. Of course, that is also to offset, let's say, the triple tariffs and all those kind of increases of cost, but we are fully in sync with the back on track target, which we announced at the beginning of the year, and we will come back on it at the full year results where we exactly are. On the maintenance, we don't see any real big impact coming from the new tariffs. Usually, the parts are excluded. We know that some parts where there's a lot of metal can have an impact in terms of tariffs, but we don't see a significant increase. And you've seen the beautiful results in the third quarter from our Engineering and Maintenance business. So, so far, that impact is very, very limited and not noticeable and not material in our results. Operator: The next question comes from the line of Antonio Duart from Goodbody. Antonio Duarte: A question for me just on Transavia, if I may, and mainly in your -- where do you see strength and weakness within Europe, considering such increase in capacity? Any routes that you see special that you would like to highlight, or where you're seeing particular weakness? Benjamin Smith: So what I look at it from a different way, the strength of Paris and the fact that it's the largest inbound tourist market in all of Europe, and that the airport is very close to Paris and has now got a new direct metro line directly into the terminal, a new Line 14. It's a very attractive airport. We've not been able to exploit our position there in the past because the cost structure of Air France and Hop was probably one of the highest in Europe. And we had a limit on the number of Transavia airplanes we could operate because of the collective agreement we had in place with the Air France pilots. So we negotiated in 2019, it was not an easy negotiation to have that limit removed. We can now operate as many Transavia flights as possible. So now with a competitive cost structure, we can really take advantage of the opportunity here in Paris. So I think the Parisian market is very strong. It's showing resilience. It's actually growing. So we are trying to position all the new capacity that we're putting into Europe with a strong focus on inbound. This is new for us. It's traffic we did not have in the past. And of course, we're trying to deploy this traffic where also there's a strong outbound component as well from Paris. So the typical markets, leisure markets in Italy, in Greece, in Spain, in Portugal, are all still quite strong. But where we're seeing very, very good growth is in Northern Africa, in the Maghreb countries, in Morocco, in Algeria, in Tunisia, as well as Beirude, so in Lebanon and Tel Aviv in Israel, as well as a few destinations in Cairo. So it's quite a unique breadth of destinations that we've got. Not typical for a low-cost carrier, but the fact that it's got so many opportunities to serve the Paris market with a very competitive cost structure, plus the benefits of flying blue, not all the benefits. We don't want to bog it down with the costs that Flying Blue can sometimes entail, but there is quite an array of unique benefits that we offer to customers on Transavia. So a loyal Air France customer does have a low-cost carrier option, which is quite unique in Europe from the main base city of the full-service airline that we have. Meanwhile, at Transavia Holland, we've been trying to manage through a situation where we don't have full visibility on the number of slots and the curfew situations at Schiphol. And of course, the bulk of the Transavia aircraft at Schiphol do start their day early in the morning. So we do have, I think, more visibility than we had 3 years ago now that the Dutch government has agreed to go through the European Commission balanced approach process, which is enabling us to take some decisions on the deployment of our fleet at Transavia. And so we'll be refining the network offering at Transavia Holland, and we believe that should improve in the near future. Operator: [Operator Instructions] We have a question coming from Muneeba Kayani from Bank of America Securities. Muneeba Kayani: This is Kate on behalf of Muneeba. I have a question on unit cost, which is tracking at the lower end of FY guide. Just wanted to ask about 4Q outlook. Are you seeing the trend continue at about 1.3% year-on-year growth into 4Q? And any kind of base effect we need to keep in mind when thinking about 4Q? And then just another question on your forward bookings on Slide 17. If I'm reading the numbers right, I'm seeing about 2% to 4% kind of lower loading factor compared to 2024, but the commentary is in line bookings. So just if you could clarify that. Am I reading the slide correctly? Steven Zaat: Let's first start on the unit cost. I'm quite optimistic about the fourth quarter unit cost. I already gave the indication where we would end in the second half year. And I think Q4 will even be a better development than Q3. We see quite some productivity coming in. And with, let's say, the more modest labor cost increase and also having our operations better running, we are quite optimistic on the fourth quarter, but we don't give an exact number. We have a full-year guidance, and you can see where we will end for the full year. For the load factor, yes, I think that what you -- of course, the numbers are right. If you have followed also the previous presentations, you have seen that we have -- every time we had these kind of gaps -- and at the end of the day, we were able to close them. So in the first quarter, we were almost closing the full gap. In the second quarter, we were 0.1%. So in terms of load factor gap, so very close to 0, and we started almost the same. And in the third quarter, we also saw the same, and we closed at minus 0.5%. So I don't say that we will fully close this load factor gap. We saw a small load factor gap in October, but we saw quite some good unit revenues. But it is too soon to tell. These are the numbers. And of course, there's no mistake in it. Operator: We have a question from Axel Stasse from Morgan Stanley. Axel Stasse: I have 2, if I may. The first one is, could you maybe provide any quantitative guidance on the back on track program contribution on EBIT for 2026? Do you still expect to be on track for the medium-term guidance? And the second question is a follow-up actually on the potential French corporate tax proposals. We have heard a lot of things in the press last week, and many legislative lift hurdles before any such proposal is actually passed. But could you just provide any indication on how much of group PBT is related to France? Steven Zaat: Back on track. We will see, of course, an outflow in 2026. I'm not yet there to guide you on the cost. As you know, I say that it's coming down and coming down and coming down if you look at the unit cost increase, but we have not finalized the full guidance on it. But the program on itself is delivering, but we see now that especially the low-yielding traffic is getting worse. So that hurt especially also KLM, plus the triple trailers. And we have to review what are our next steps with our KLM operations. So that is where we are currently working together with the KLM management. The second question, I don't have any figures, but-- Benjamin Smith: Yes, it's Ben. From what we've seen over the last week, we don't have an aggregate -- any aggregate figures on that and how that could impact us. As you know, things are moving all over the place. But the current government that's sitting, I think we have a good feeling that what we had in place last year is going to be very similar to what should be in place this year. But as you know, it's not very stable here, but the big items that could impact us seem to be under control. And comment actually on the guidance. Because it was a question, we will come back on that with the full-year results. But we are still, let's say, aiming at 8% margin in the period '26, '28. Operator: There are no further questions. So I hand back over to you, Sirs, for closing remarks. Benjamin Smith: Okay. Well, thank you, everyone, for joining us today, and we look forward to sharing our results at the end of the year, the end of the fourth quarter. Thank you. Operator: Thank you for joining today's call. You may now disconnect your lines.
Operator: Good day, and thank you for standing by. Welcome to the Q3 2025 Nu Skin Enterprises Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand over the conference to your first speaker today, B.G. Hunt, Vice President, Treasurer and Investor Relations. Please go ahead. B.G. Hunt: Thanks, Dania, and good afternoon, everyone. I'm joined by Ryan Napierski, President and CEO; and James Thomas, CFO. We're excited to share Nu Skin's results from Q3 of 2025. Before I turn time over to Ryan, let me point out that on today's call, comments will be made that include forward-looking statements. These statements involve important risks and uncertainties, and actual results may differ materially from those discussed or anticipated. Please refer to today's earnings release and our SEC filings for a complete discussion of these risks. Also during the call, certain financial numbers may be discussed that differ from comparable numbers obtained in our financial statements. We believe these non-GAAP numbers assist in comparing period-to-period results in a more consistent manner. Please refer to our investor website, ir.nuskin.com for any required reconciliation of these non-GAAP numbers. And with that, I'd like to now turn the call over to Ryan. Ryan Napierski: Thanks, B.G. Thanks, everybody, for joining the call today. I'm pleased to report that we delivered third quarter revenue of $364 million, which was within our guidance range. We also delivered EPS of $0.34 at the higher end of our guidance range, and I'm encouraged by our ability to maintain disciplined execution amidst ongoing macro environmental pressures that are impacting the industry. With 3 quarters behind us, we are now focused on Q4 as we further our vision of becoming the world's leading intelligent beauty, wellness and lifestyle leadership opportunity platform by preparing for our next big opportunities with the introduction of Prysm iO, our truly intelligent wellness platform and the premarket opening of India, which I'll come back to in just a few minutes. Latin America continued its exceptional growth trajectory, up 53% year-over-year. This is demonstrating the potential of our emerging market strategy, which is enabling us to reach a broader aspiring middle target market of entrepreneurs and customers. This growth was offset by continued challenges in North America, where we have been transforming our business model to address macro environmental landscape matters. However, I'm pleased to report sequential growth in Europe and Africa, South Korea, Southeast Asia Pacific and Hong Kong and Taiwan. In Mainland China, we're seeing improving trends as well across our KPIs as we introduced our Tru Face clinically backed skin care line and our Rhyz segment performed as anticipated with LifeDNA exceeding expectations. Now I'll return to our strategic priorities that we outlined for the year. Our top priority for the core Nu Skin business is to ignite the passion and energy of our highly committed and dedicated sales leaders with our next big opportunities. First, the introduction of Prysm iO, our truly intelligent wellness platform; and second, the expansion of our emerging market strategy into India as we seek to extend the Nu Skin opportunity to this exciting market. Our teams and sales leaders around the globe have been laying the groundwork for these 2 key introductions over the past few years, and we're excited to initiate both of them in a limited fashion this quarter with full-scale launches in 2026. Let me first share some updates on Prysm iO that include our proprietary health assessment device paired with our AI-powered intelligent insights app that helps consumers navigate their personal wellness journey. While premium beauty continues to be under pressure, the wellness industry and specifically the intelligent wellness market is expanding dramatically, and new entrants are rapidly expanding awareness about the importance of intelligent health and measuring biomarkers. According to Grand View Research, the intelligent wellness wearables market has been growing by double digits and reached $84 billion in 2024 as consumers desire greater insights into their overall well-being by measuring and tracking their internal biomarkers. And the total addressable market for nutritional supplements reached nearly $500 billion in 2024 and is expected to grow to over $700 billion by 2030 with very little ability to know whether these supplements actually work. Nu Skin is already regarded as the world's #1 beauty device systems brand according to Euromonitor, which is becoming an even greater strategic advantage within the beauty and wellness industries. Additionally, we hold more than 40 years of science-backed research and development in this space and more than 20 years of intelligent wellness research contained in our biophotonics scanner, including insights and trends from the aggregate of 21 million scans for more than 10 million people across more than 50 countries around the world. Combined, these competitive advantages place us in a very unique position to introduce Prysm iO, an entirely new noninvasive device that measures one skin carotenoids levels, providing people with valuable insights into their antioxidant status and nutritional health. With the rapid acceleration of Agentic AI, we're training our own proprietary language model, which will enable us to drive deep, actionable insights about our consumers' overall wellness and expand our ability to service customers as they navigate their personal wellness journey. Prysm iO and our intelligent wellness app provide personalized nutritional insights across the broader wellness journey, covering one's diet, fitness, oxidative stress and sleep and nutritional supplementation and generates personalized product solution recommendations. From a scalability perspective, this more portable form factor, ability to scan quickly and a more accessible price point for Prysm iO will enable us to place significantly more devices around the globe. We currently have approximately 1,500 biophotonics scanners in the field today, and we anticipate placing more than 10,000 Prysm iO units in Q4, with tens of thousands of units placed per quarter throughout 2026. From a business building perspective, the unit economics of Prysm iO are also incredibly compelling as our experience has shown that more customers being scanned leads directly to more subscriptions. Subscribed customers produce approximately 7x greater lifetime value than nonsubscribed customers, and we have more than 300,000 subscribed customers in any given month on our platform. We believe that Prysm iO will enable us to significantly expand our subscribed customer base in the coming years, which will further strengthen our sales force productivity as they lean in to drive this truly intelligent wellness movement around the world. Q4 sets the foundation for limited Prysm iO brand representative previews. And in early 2026, we will begin opening up sales via our sales leaders to their affiliates and customers. Full consumer launches are currently scheduled for the second half of the year. Our second strategic priority focuses on expanding our emerging market business model into India. With 1.4 billion people, India is one of the largest future opportunities for us globally, where there is a rapidly growing middle class segment of the market who need what we offer, to look, feel and live more empowered lives. We are entering India with a more focused and scalable business model based on our learnings in Latin America, which include a localized product portfolio priced for India's growing middle class, a refined compensation plan and a digital-first infrastructure with our India-based Infosys partners. We recently hired a dynamic local management team, and I'm excited to be kicking off our qualified premarket opening beginning next week with a multicity tour across India, working towards our full-scale opening anticipated in the back half of next year. I'm excited about the potential for India and our other emerging markets, which we anticipate will become a much larger part of our core business revenue in the coming years. Paired with these 2 exciting top line growth drivers, we remain focused on continuing to strengthen our financial performance and profitability across the business as we sustainably grow gross margin by optimizing our product portfolio, manage selling expense to ensure optimal rewards for our hard-working sales force and drive overall profitability across our business segments around the globe. We believe these initiatives will continue to strengthen our overall financial position and improve shareholder value in the quarters and years to come. So with that, I'll turn the time over to James to dive deeper into our financial performance and outlook for the remainder of the year. James? James Thomas: Thank you, Ryan. Good afternoon, and thank you for joining us today. I'm pleased to provide an overview of our performance for the quarter, including key financial highlights, recent developments and our outlook for the remainder of 2025. I'll walk through our results, key business dynamics and how we continue to navigate the current macroeconomic environment with discipline and focus. I'll be speaking to adjusted non-GAAP financial measures as it pertains to our financial results. Reconciliations to the most directly comparable GAAP measures can be found on our Investor Relations website. For the third quarter, we delivered results consistent with our guidance range, reflecting continued operational discipline and financial resilience. Revenue came in at $364.2 million, with a 40 basis point headwind from foreign currency. Earnings per share was $0.34 at the high end of our guidance range, benefited by gross margin improvements and ongoing cost efficiency initiatives. Our gross margin for the quarter was 70.5% compared to 70.1% in the prior year, primarily due to the revenue mix between Rhyz entities and the Nu Skin core. Within our Nu Skin core business, gross margin was 77.7%, up 120 basis points from the prior year. We are continuing to see the benefits of our strategic portfolio optimization and product mix improvements within the core business. I want to highlight that this is our fifth consecutive quarter of adjusted gross margin improvement. Selling expense as a percentage of revenue was 35.8% for the quarter, a decline from 39% in the prior year, primarily reflecting the inclusion of our live conventions in the prior year compare. Within the core Nu Skin business, selling expense was 41.7%, consistent with our compensation plan alignment and leader engagement progress. Looking ahead, we expect selling expense in the core business to remain around 40% as we continue driving adoption of our enhanced compensation plan and focus our investments on initiatives that have the greatest impact on driving towards top line growth. General and administrative expenses remain well managed and aligned with our efficiency initiatives, market streamlining and technology optimization efforts. We remain committed to managing overhead expenses in line with revenue while maintaining an appropriately scaled cost structure given the fixed nature of these costs. Operating margin for the quarter was 5.9%, up from 4.2% in the prior year, which marks another quarter of year-over-year improvement as we execute against our long-term profitability objectives. We continue to strengthen our balance sheet and maintain a solid liquidity position. We closed the quarter with $252 million in cash and reduced total debt by $20 million, resulting in an expanded positive net cash position. Cash flow from operations was $27.7 million, reflecting disciplined working capital management and profitability. We returned approximately $3 million to shareholders through dividends during the quarter, repurchased $5 million in shares and have $152.4 million remaining under our current share repurchase authorization. Our capital allocation priorities remain consistent, investing in innovation and growth, maintaining a strong balance sheet while further delevering the business and returning capital to shareholders where appropriate. Looking ahead, we remain focused on executing our strategic priorities, driving profitability, advancing key innovations and setting the stage for growth acceleration in 2026. Our upcoming limited release of Prysm iO intelligent wellness device remains on track for Q4, representing a major milestone in our transformation toward personalized AI-powered wellness. We're also encouraged by the continued momentum in developing markets, particularly Latin America, which remains strong and by our premarket opening in India, where we're laying the groundwork for long-term success. Following the sale of Mavely, Rhyz continues to perform in line with expectations. Our Rhyz Manufacturing segment is on track for year-over-year growth, supported by strong partner demand and expanding capabilities. We are also evaluating opportunities with LifeDNA to maximize our return on investment. For the fourth quarter, we project revenue between $365 million to $400 million and earnings per share between $0.25 and $0.35 for the full year 2025 -- sorry, for the full year 2025, we narrowed our guidance range of revenue between $1.48 billion to $1.51 billion, while maintaining the high end of our earnings per share of $3.15 to $3.25 with adjusted earnings per share between $1.25 and $1.35. In conclusion, we remain confident in our strategic direction focused on disciplined execution, innovation-driven growth and creating long-term shareholder value. And with that, operator, we'll now open up the call for questions. Operator: [Operator Instructions] Our first question comes from the line of Dave Storms of Stonegate. David Storms: I wanted to start with the full year guidance. It looks like since last quarter, you brought down the top end of revenue but brought up the low end of EPS kind of tightening that range, which makes sense relative to how your 3Q results came in relative to guidance for that. I guess I'd really like to ask what are the puts and takes here? What's really been working between the price versus volume mix, operational efficiencies? I was hoping to just spend a little more time there. Ryan Napierski: Yes. I'm happy to talk, Dave, more kind of strategy to plan and James can pitch in as well here. Yes, so definitely just trying to narrow the range kind of based upon Q3 results and what we're seeing in Q4. I think the 2 biggest considerations for us on the front end of the plan are how will the adoption of Prysm iO into the business really impact our driving KPIs, really sales leaders and customers as it comes to market kind of mid- to late Q4. And so we obviously are timing these introductions region by region. And so based upon the ability to get the devices into the market and all of that. So that's probably some of the level of question there that we're evaluating. And then, of course, India, as we're going out and really starting to acquire revenue there late next week. So this is kind of real-time activity. I'll be there with James and our team kind of doing this premarket opening tour. So we're really just getting going. And India just is one of those markets that has enormous potential, but it's also a new market for us that we're going to have to learn in the emerging middle space. And so I think those are the 2 kind of big considerations on the front end that we're evaluating there. I would just mention on profitability. I'm really pleased with James and our organization around the globe to really manage costs. I mean, growing that gross margin 5 quarters in a row, managing selling expense in that optimal level and then improving profitability during a more difficult time has been a big undertaking. And so -- but I think that earnings opportunity there continues to be good for us. But those are from my point of view. James, anything else you'd add on? Puts and takes? James Thomas: Yes. Dave, I'd just echo Ryan's comments on where we're really succeeding in that gross margin improvement. A lot of the -- it's been a long turn in terms of all the moves that have been made, and it's been consistently across the 50 different markets that we -- approximately 50 different markets that we operate in. And so it's been a strategic design around going after and doing that. It's also been around strategic product positioning around the world in terms of what we're pushing forward to help with product mix and what our sales force is ready to push forward. And so it's that. It's also -- some improvements in selling expense, working to push those towards our highest returning initiatives. And then obviously, in our G&A, we're down dollars year-over-year. We continue to look at that. Those are fixed cost in nature. And so we're always continuing to evaluate ways to find greater efficiencies, and that's led to us expanding our earnings guidance last quarter, and we did move up the low end on our earnings in the Q4 guide for Q3 performance and feel really good about our performance to date in terms of profitability. David Storms: That's great color. I appreciate that. Sticking maybe, Ryan, going back to India. I know you mentioned you guys are going to be over there shortly with the soft opening. Kind of can you help us get a more clear picture on what the final launch logistics are like there? I'm sure you might not know this at this time, but India is an enormous market opportunity for you guys just by population alone. I got to imagine there's going to be markets within markets over there. How are you guys thinking about maybe segmenting that opportunity? Ryan Napierski: Yes, Dave, this, I think, is a really important question because the way we're opening India is unlike anything we've opened before in our other 40-plus markets. We really have been deliberate in learning the local market, both with our partners as well as our local team there. And so we're initiating this -- what we're calling a pre-market opening period where we will actually begin to acquire revenues and build our sales force out there. And so that's very different from what we've historically done where we wait until a launch and then actually go full scale. So -- and the intent behind that is exactly what you described. The markets within markets in India and within India, when we're dealing with Mumbai and Delhi alone or Coimbatore when you go further northwest, they're all somewhat -- versus the South, Southeast, they're all fairly unique in nature. And so our plan, as we go over for the multi-city tour, we begin to acquire -- conduct business and learn the market, it will be -- it will give us the insights that we'll then be able to understand how to go -- how and where to go more aggressively. Because we are going forward with a digital-first model, meaning that we're really minimizing bricks and mortar, we're locally manufacturing, but we're using our Infosys partnership and Infosys is one of the largest digital firms based out of India. They've been very helpful to us. We're able to really scale the operation in a pretty variable manner and put the focus where it needs to be based upon the business that we're introducing there. One other differentiation, I would say is that we're going in -- historically, we've only gone in with skin care. That's been our opening model. And we are actually going into India with skin care, including a local line of product called Serenu, which is a professional line built for salon like use, which is very important in beauty as well as the nutrition side of our business. So we'll be bringing Prysm iO in with some of our Pharmanex, locally adjusted Pharmanex products on the nutrition line. So there are several interesting factors there. We have very little built into the model for Q4 just because we really want to learn our way. And so that's kind of how we're looking at it. David Storms: Sounds like a really full-scale operation. Thinking about domestic markets here in North America. You mentioned you're doing a little bit of restructuring here. Any correlation to that with the current government shutdown. I guess kind of what inning are we in with some of that revamp? And have you seen any of that be impacted by the shutdown in the United States? Ryan Napierski: Yes. Yes, North America has been less impacted by the shutdown itself at the government level. But I would say that from an industry point of view, ongoing regulatory work within direct selling has been something that we look at pretty closely. We want to make sure that our model is always highly compliant. What I'm referring to or what I referred to from a macro perspective is more related to direct selling continuing to evolve kind of post COVID. During COVID, everyone was really locked down in our homes, a lot of spare time and online shopping, of course, went crazy because people couldn't get into stores. And that was really good for not only Nu Skin, but the direct selling world as well as just generally social commerce. I think over the last 3 years, beauty has gotten very crowded in the social space. If you think about the number of influencer-based social beauty brands that have -- and down, frankly, most that go up are going down pretty quickly thereafter. That's kind of created a lot of noise in the social marketplace, where Nu Skin in North America has been quite heavy. And so for us, as we look to North America and refining our business model there, we're really looking into, of course, beauty will continue to be very important for us. Social commerce, very important. It's primary outlet for our awareness and engagement business here. But we are leaning more into this intelligent wellness market. And I'm sure as you do as well, intelligent wellness is just really blowing up. Over the last 3 years, a lot of wearable business is coming out of the woodworks it seems, a lot of social brands there that are blowing up podcasters like the Peter Attia, the Andrew Huberman, they're spending a lot of time on biomarkers and the importance of understanding these elements for longevity. And so for us, where we have historically been an integrated beauty and wellness business, meaning roughly half of our business was beauty, half of it was wellness. In the U.S., over the last 4 or 5 years, it's skewed heavily towards beauty because of the social commerce surge. We now see moving forward, a rebalancing of our business, and we see the intelligent wellness side with Prysm iO, with our AI-powered app, just really hitting the sweet spot in the intelligent -- that $84 billion intelligent wellness market. I think it's going to play really well in North America and around the world. What I equally as interested in is many of our social -- our female social leaders who drove our social brand over the course of the last 5 to 7 years are finding a lot of interest in this intelligent wellness device because of the health tracking or wellness tracking that this Prysm iO can do for their families. And so we're seeing this Prysm iO in our test marketing being utilized as kind of almost like a scale at the home where we have children scanning, couples or partner scanning. And so it's becoming more of a family based effort, not only an individual wearable effort. So I think those things combined are going to put us in a position to be able to level this market and then really grow it because long term, we see North America is continuing to lead both premium beauty and wellness. David Storms: That makes a lot of sense. One more, if I could just sneak one in here. Southeast Asia saw strong sequential growth. It's kind of a sequential standout here at a revenue level. Would just love to get your thoughts maybe a little more about what drove that and if there's any more to that story. Ryan Napierski: Yes. Southeast Asia has been interesting for us because it is such a diverse marketplace of individual countries. And so you have markets like the Pacific that has done extremely well over the last several months, great growth coming out of Pacific, which is Australia, New Zealand and the islands around that area. So they've done really well. We have a new business sales performance plan that has really worked well there. And then they have some very international tentacles from the Pacific that reach into other parts of the world. Other parts like Indonesia, which is our largest market in Southeast Asia and probably holds the greatest potential with such a large population where we're continuing to find and find our way through to local populations there, and we see some ebbs and flows in that business. Other markets like Malaysia doing very well, Singapore doing well. And then you have Thailand and Philippines that are kind of holding back a little bit. So it is a little bit of a mix in the markets. I think what you're seeing on the sequential data is a lot of growth from Pacific that's helping out and then South -- Singapore doing well, Malaysia doing better and the like. So again, we look forward to what will Prysm iO do in that business. We have a very strong TR90 business, which is our body transformation or body shaping system. That's done really well in Southeast Asia and is very complementary towards our Prysm iO and the wellness side of the business that we think this will further strengthen as well. Operator: I am now showing no further questions at this time. I would now like to turn it back to Ryan Napierski, CEO, for closing remarks. Ryan Napierski: No, that's great. Thank you very much for joining our call today. We here are charging forward into a new era of potential for Nu Skin as we further progress our vision of becoming the world's leading intelligent beauty, wellness and lifestyle leadership opportunity platform, beginning with the introduction of Prysm iO and our Truly Intelligent Wellness initiative this quarter and leading into 2026. As we look forward to extending Nu Skin's reach into India in the coming year, we're excited about this and the enormous potential that India holds for us as we learn how to benefit the people of India with what we have to offer. So while the broader beauty industry remains somewhat lost in the macroeconomic uncertainties, we are very clear on the pathway forward for us in leading this truly intelligent wellness movement based upon our 40-year history in the beauty and wellness space. And in a very distracted world of affiliate marketing where it seems that every other brand is seeking to capture the attention of influencers on social media, our dedicated to committed global sales force is our greatest strength, and we'll be leveraging them to achieve our vision moving forward. The rest of this year and into early '26 is all about aligning our teams around the world, building support, connectivity and excitement to set the stage for a return to growth and improved profitability. So with that, we'll keep you updated along the way as we go through this dynamic journey, and thanks for joining our call. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
John Andersen: Good morning, everyone. My name is John Andersen. I'm the Chairman of the Board of Norsk Titanium, and welcome to this third quarter operational update. I know that you are all eager to hear from our new CEO, Fabrizio Ponte. But since Fabrizio joined us only 4 weeks ago on October 6, we thought it was appropriate that I make some introduction on our performance in the third quarter before leaving the floor to him. We also have online our CFO, Ashar Ashary. Ashar is unfortunately unable to travel due to a back injury, but he will be able to participate in the Q&A session. So just a quick reminder of our position in the additive manufacturing space. Norsk Titanium has a proprietary technology validated by the OEMs with large installed capacity. This is our starting point. We have a significant value proposition, and we do have manufacturing capacity installed and ready to serve our customers. We operate in what we would describe as a large market. As of today, we estimate the addressable market to be at USD 7 billion. Now you might argue that, that's quite a bit to work with in itself. But clearly, this market will continue to grow over time for 2 reasons. First of all, we see increasing build rate in our core markets, first and foremost, aerospace, defense, and then on the other hand, we continue to expand on our capabilities, so we will be able to serve a growing proportion of the market as we continue to expand on these capabilities, both in part size and into new metals. And finally, we have an established customer base. We have frame agreements with the leading OEMs. And our focus now is really to make sure that we can grow the business under these framework agreements, the existing ones and the ones to come. So this is really our starting point, a qualified technology, a certified technology, installed capacity, it's all about commercial execution, and you will hear more about that later in the presentation. What happened in the third quarter? Well, first and foremost, we did transition 2 additional industrial parts into serial production. I openly admit that this was less than we expected and less than we hoped for. It doesn't mean that opportunities have disappeared. But as you have seen before, it do take time to convert these opportunities into serial production. So what happened in addition? First of all, we continued to progress our discussions with Airbus. These are discussions in the short term about the third production order that we know many are following closely and waiting for. These discussions continue to progress with a wide range of stakeholders in Airbus, and Fabrizio will speak in somewhat more detail about that later. In addition, we also work with Airbus under a longer-term road map. And when Fabrizio talks about that later, please have a look at how the interaction between Airbus and ourselves map to the road map that Airbus has announced publicly about how they intend to expand the utilization of additive manufacturing. Then we had strong -- then we see strong momentum in defense, which is no surprise, I think, to -- for people following that sector today. Governments increased their spending in defense and time is of essence for obvious reasons. We have an ongoing discussion with ICAM, which is the Innovation Capability and Modernization Office under the Department of Defense. They have named our technology a key enabler to be able to drive increased capacity for defense products across a number of domains in the U.S. So we are hopeful that this will increase our revenues short term because these are paid development activities. And at the end of this development time line, 18 months, there will be increased serial production. And this is a good illustration of what defense offers, right? They offer funded development activities as well as significant parts manufacturing opportunities. Then we continue to expand in industrial markets. This is also something that Fabrizio will talk a bit more about later. But of course, the 2 parts that I mentioned is targeted in those specific markets. We did raise $22 million to strengthen our balance sheet and to strengthen our financial position first in a private placement and then in a repair issue closely thereafter. Under the same heading, we have also, after having made initial investments in the first half to make sure that we have the capabilities needed to convince our customers, we have also then taken a more careful approach to our cash burn in the third quarter, and you should expect those activities also to continue to make sure that our costs are aligned with our revenue development. Clearly, as I started with, our #1 challenge, our #1 priority is to convert our technology position, our industrial position into the commercial opportunities. And that's an excellent segue into my introduction of Fabrizio Ponte. Why did we feel that it -- that he had the right profile to lead this company forward? It's about commercial execution. It's about operational readiness. It's about financial discipline. And you will hear now from Fabrizio in his own words, how he feels that his background makes him very well equipped to take on this challenge going forward. So with that, Fabrizio, please. Fabrizio Ponte: Thank you, John. All Right. So maybe I take control. Can you hear me okay? So good morning, everybody. I'm Fabrizio Ponte. I'm the new CEO of Norsk Titanium. And I can tell you, I'm really excited to be here in Oslo and to have joined Norsk Titanium. A little bit about my background. I've been -- I spent the last 30 years replacing metal with very special polymers, okay? And now I made a jump on the dark side, joining a very special company in very special processes, making very special metal parts, replacing forgers, okay? So I know the drill. I know what it takes to get from point A to point B and push it across the tipping point. Why am I excited about Norsk Titanium? I mean, first and foremost is the technology. I mean, it's a game changer. From the outside, before joining, I studied a lot. I saw the potential for this technology. But then as soon as I joined, I started to hear about the pull that we have from the market, aerospace structures, defense and many other industries. And this gives me really, really a lot of confidence for the future of Norsk Titanium. What do I bring to the table? As I said, I've been working on replacing metal. So I know how to set up operation, scale operation and work with the markets, multiple markets in order to make technological changes. And this is very, very exciting to me. I think this is what I bring to Norsk. And I think with all the expertise that we have and the commercial expertise that I bring, we are going to be very, very successful in the coming years. As a leader of Norsk Titanium, I mean, I'd like to share a little bit what I believe. And first of all, quality and safety for me are nonnegotiable cultural traits. It is important that especially when you operate in aerospace and when you operate in defense, quality is nonnegotiable, okay? So you need to make sure that everything you do meets the standards of your customers. So this is going to -- I think it is, but it will remain a very important feature of Norsk Titanium. The second most important thing that is always in my head are customers. I have, I say, customer obsession. I really believe on working and everything has to be done with the customer in mind. I mean we exist because we have customers. So we need to serve our customers and working with them, gaining their trust and developing partnership is very important, especially in markets like this, where it takes time to develop and you need to have working in partnership together because together, you're going to cross the finish line. I believe on accountability. I believe in team play, but at the same time, I believe in accountability. So we are going to set clear targets that we're going to work very hard to deliver. I really believe that we have the right expertise in place. I saw that in my first month in the job. And this gives me also a lot of confidence. All right. So that's a little bit about me and a little bit about why am -- I joined Norsk Titanium and what I believe in. What is going to happen -- what has happened in the first 30 days? What is going to happen in the next 60 days? We had a plan for my first 3 months. No questions about it. There is a lot that I need to learn. As I said, I come from a very similar background, specialty products, replacing technologies and making advances in the market and scaling operation. But at the same time, titanium and special alloys are different than polymers. So of course, I need to learn. And the first -- and I'm really trying to be a sponge. I've been working very hard in the first 30 days internally. I'll continue to do that in the coming months. I mean, I believe I will learn from my colleagues and my team at Norsk, but I also will learn from customers. And I can tell you, as soon as I'm finished here in Norway, next week, my tour with customers will start with a number of very important discussion already lineup. This will help me to understand where we are, what we do and what our customers think of Norsk Titanium and what is in the future. Now what is the plan here? The plan is laid out across 3 different dimensions. Number one is commercial execution. I'm lucky enough to have joined Norsk Titanium with a rich pipeline of work. So it's not that I'm starting from scratch. So Norsk has been around for quite some time and advanced the technology and the customer relationship quite a bit. So I take advantage of all that. But I'm really trying to understand and digest what really our status is and what is going to take in order to really go across the finish line from the commercial standpoint. To me, that's my priority #1 in the first 3 months. In parallel, I'm working with operation. We want to be ready when we will need to serve large volumes with our operation. And scaling is always a big challenge. You never know what is going to happen. I mean -- but you need to be prepared, you need to get to a certain level. And then when it's going to hit, you need to know what the plan is and what to do. So I'm working with my operation to understand the strong points, the weak points and work towards making sure that we are ready when we need to be ready, which is going to happen very, very soon. Last but not least is financial discipline, okay? We have a finite funds available, and we know that we need to work with that in mind. So it is important that the entire company is aware of that and it works with the right discipline from the financial and the cash standpoint. So this is critical, and I'm positive we are in the right direction here. All right. So let's jump into the business. And I'll do my best to provide you an update. Please -- and I know that I can use this excuse only once, so I'm using it today. So -- but I've been with the company for 30 days now. It's actually the 6th. I mean, it's 1 month today, okay? So it's my birthday today, 1 month with the company. But I'll do my best to provide you an update of what happened in quarter 3 and a little bit of an outlook for the future. And -- okay, I'd like to say that quite a bit happened, okay? So of course, we continue to deliver parts to Boeing and Airbus. It's not huge, as you saw from the numbers. But nevertheless, we are making parts that are currently flying on different airplanes. So that's a very good starting point. But what I think made a difference in this quarter is really the ongoing discussion that we had with Airbus. This is really I'd like to think, a partnership between Norsk Titanium and Airbus. Airbus is focused on implementing additive manufacturing within their processes. They see additive manufacturing as a key enabler to the next-generation airplane. And they know that in order to get there, they need to translate parts now in order to be ready. And this is where Norsk Titanium comes into play. So Norsk Titanium is one of the key players in the technology at Airbus. We have -- you can see here the road map that Airbus has developed, and you can recognize some of our parts already there. So this is very comforting. You can see our position with Airbus. I don't have to explain that to you. Very -- I think we've been very active and with a lot of intense discussion, you understand that commercial aerospace is a very regulated market. You need to go through the steps and the steps are controlled by the OEM. Our job is to support them, help them, push them sometimes to stay at target. But these discussions are ongoing on a daily basis, okay? So next week, one of my first stop is going to be exactly with these guys. And because I look at Airbus as a very strategic and relevant customer and opportunity, which is going to really unlock the potential for us. What is even more remarkable is, as I said, the Airbus is looking into using additive manufacturing as a pivotal technology for the future. There are a lot of discussion on how Norsk Titanium can support Airbus to do that. This really goes beyond the third production order that John referenced. So of course, the third production order is the step that is going to take us over there. But even more exciting to me for the future is the fact that they want to work with us in order to define the standards of additive manufacturing. So that's very comforting and very exciting for me as a CEO and for Norsk Titanium as a whole. Last but not least, also to help you to understand how we work in the industry and what we need to do in order to really cross the finish line. I think this was a couple of months ago, we organized a very strategically important meeting with all the regulators, North American and European and Airbus. And altogether around the table, we discussed how to sort everything out and how to make progress towards part manufacturing with our technology and in additive manufacturing. So I think this is very unique when a company is able to bring around the table the key stakeholders that are going to make the decisions and define plans with key milestones in order to move forward is really a remarkable thing. I'm very excited about commercial aircraft. I think I'm excited about structures. I'm excited about other application we are working on like in engines and other parts in the aerospace. It's very, very good, okay? Second, defense. Defense is changing. It's a new industry. I mean it used to be as conservative and as regulated as aerospace. Now the situation is, because of geopolitical drivers, is a little bit different. So the industry is trying to acquire speed. The industry understands the need to change the way it makes parts and develops technologies that will make parts faster, stronger and in a much larger scale. We are an enabler to that, okay? And as John mentioned, we've been selected by ICAM, so the Innovation Capability and Modernization Program within DoD on 18 months program to validate our technology. So they're going to work in order to qualify us and validate us. When they qualify the technology, then to go and make parts, it becomes much, much easier, okay? So we are going to work very hard in order to succeed in these 18 months. And when we are at the end of the program -- and by the way, we are going to work with a number of primes there. We're not just there by ourselves. Then we're going to go and start to enable part manufacturing in a number of, let's say, sectors within the defense, air, land, sea, these are all targets that we're going to go for. And I think this is going to provide quite a bit of surprise -- positive surprises to us. Number three is all the industrial part. So we have a good starting point. We are already in semiconductor. I've been operating in semiconductor in a previous life. This is an important part. It is a wafer carrier. It goes to one of the -- if not, is one of the most important OEMs in the semiconductor industry. I'm very excited about this. They had a slowdown. Now things are picking up again. I'm going to be meeting these guys next week, too. And I think semiconductor is going to be also an opportunity. It's the first, let's say, industrial application that we are in production and gives me comfort that our technology has a play outside of just pure aerospace. As you read from the summary, we also converted other 2 parts in 2 other industrial applications. So all this tells me that we are on the right track. We -- before my time, so I will enjoy that, too, we set up -- we have started to set up a commercial team. We have dedicated and focused sales and [ biz ] development managers working in industrial. We mapped the entire industry. We understand what the priorities are. And we have a number of focused discussion with key OEMs in a number of industries, energy, again, semiconductor, oil and gas and a few others. So this will bring quite a bit of diversification. As I said, we've been all in aerospace, which is heavily regulated with a long development cycle for quite some time. All these markets are less regulated than that. There are going to be faster cycle, and I think they're going to bring opportunities in a shorter period of time and make up to the delays that oftentimes we have to bear within the aerospace industry. So to conclude, okay? So I'm the new CEO in Norsk Titanium. I'm very excited to be here. I like to believe I'm really the right person for this very moment in Norsk Titanium. I come exactly in the time where we need to go across -- we need to push it a little bit, go across the tipping point and then really start to scale it, and I know how to do that. So I'm very excited about this. I think I worked in the last 30 years to get to this opportunity. So I really think that my background helped me to be here, and I'm really energized to go after this challenge and take Norsk Titanium to the next level. I see this as the opportunity of my lifetime. We are really focused across 3 different work streams, okay? Commercial, operation and financial. Commercial to me, I always say starts first, we need to make sure that we secure our revenues, profitable revenues. So we need to -- in the next months and years, we need to work with our customers in order to secure our revenues and make the jump that Norsk Titanium needs to make. This is the priority #1. Everything else follows, okay? Operation, being ready in an efficient way, but also being able to scale it. And in additive manufacturing, it's slightly different than in other industries. So you scale in a different way that, for instance, you scale in the polymer industry, okay? But you need to be sure that you do that ahead of time. You cannot be caught off guard when you are there. And then financial discipline, very important across the entire industry. Finally, obviously, modest near-term revenue. I mean you saw that this year as certainly we cannot claim a victory and -- but having said that, we made solid steps towards success. I'm very positive about that. I mean when people ask me, what you see. And what I see is I'm very confident about the future and the outlook. I have no doubts about that. So I always say it's not a matter of if, but it's a matter of when. My job is to make sure that this when comes as fast as possible, and I will work diligently and with a lot of energy in order to make sure that, that happens. Thank you for today. I really hope this was informative. I hope you know me a little bit better. You started to know me a little bit better. I think in the coming quarters, this will continue, and we're going to get to know each other and work together for the future and to make Norsk Titanium very successful. Thank you, everybody. Unknown Executive: Thank you, Fabrizio and John. I think we'll move over to the Q&A section. So we'll start with the audience here in Oslo. Please raise your hand if you have any questions. And please state your name before you ask the question. Unknown Attendee: [ Preben Rasch-Olsen ]. I have actually 3 questions. I hope that's okay. A few of them should be pretty easy. First, on the outlook, no mentioning of any revenue targets next year or 3 years from now. Are you finally done with that stupid guidance? Fabrizio Ponte: I may take this one. So okay. You say it's a stupid guidance, so I accept your constructive feedback. I've been here for 4 weeks, okay? So I'm working to understand exactly what we have in place, what our customers are saying and expecting from us. So very difficult for me to give you a firm feedback on this. I mean I'll work another couple of months. So in the next review, which is going to happen early next year, I mean, we're going to talk about that. But yes, I mean, it's -- maybe we will stop the stupid guidance... Unknown Attendee: I think that's smart. What you could guide on and would be interesting to hear is a realistic cash burn in the first half of '26. What sort of the level you can reach and should reach? Fabrizio Ponte: So also here, I mean, we are -- okay, we're already reducing this. I mean we were successful at going from $2.9 million to $2.4 million. Now we want to go at USD $2 million. But certainly, before the end of the year, I want to be in the position to set a target that we can absolutely achieve, which is not going to go up, but it's going to go down. What is achievable? I cannot tell you right now. But what I can tell you that I'm committed to define a very clear target that we're going to work on and deliver on an average for next year. But this is absolutely, as I said here, one of our targets. I mean we know that we need to reduce our cash burn rate, and we're going to do it, okay, one way or another one. Unknown Attendee: And last one is really on the aerospace. My understanding was that you sort of was done with all the approvals from the regulators. But you were saying you're sitting down with Airbus and the regulator... Fabrizio Ponte: Okay. I hear too. And you can correct me if I say something stupid, okay, [ Preben ]. So okay, It's -- okay, first of all, you know that there is a government shutdown in the U.S. This is impacting us a little bit. So right now, actually, everything is blocked and standing still until they reopen, the government. I mean they cannot progress. Aligning the FAA and EASA is not easy work, and they need to be aligned for us to be approved to go forward. So everything is done. We need to complete the paperwork. And this did not happen for multiple reasons. Hence, we decided to take the bull from the horn. We brought everybody around the table to do exactly that. This also says that, hey, we are not sitting and waiting hoping that it's going to happen. We are actively trying our best to influence and progress, which is not easy work, believe me. John Andersen: So if I may add to what Fabrizio said because this is also a legacy issue, right? So you're absolutely right, [ Preben ]. The fundamental approvals, the fundamental certification is obviously there. But if you look at Airbus road map and what they want to do going forward, we cannot continue to work in the same way. We cannot continue to approve additive manufacturing parts with a forging legacy. And the regulators agree, and Airbus agrees. So this was more about how can we streamline processes going forward, how can we ensure information flow, how can we have an approach that actually is based on the fundamentals of additive manufacturing, right, not to reopen the certification process, but to make things more efficient going forward. Because if you look at the road map that Airbus has been quite vocal about, it requires a change also on the regulator side. And it's a bit unusual, right, that both the regulators sit down, as Fabrizio said, with a company like ours to actually talk about -- I mean, it's like the regulators would actually accept that we are really the point of gravity in the additive manufacturing space. We have gone through this cycle. There are no other additive manufacturing companies that have gone through this cycle. So we put them together in the same room, which they don't do often. And then we can talk about how to make this efficient going forward because otherwise, there is a risk that we will have stumbling blocks as we try to help Airbus implement their road map. That's how to think about it. Unknown Executive: Any more questions in the audience? Okay. We'll move over to the web. With delay in revenues, what operational changes have been made to ensure better execution as revenue scales? John Andersen: So maybe I can start because this is a bit of legacy. So -- and this ties in with what we discussed earlier about burn rate, right? So we did make certain investments, which we also described in our third quarter update. We did make certain investments to be ready in the first half and hence, the slightly higher burn rate. Now we are in a position where we can manage that more carefully. So it goes to a number -- it goes to capacity, it goes to inventory. It goes to securing downstream capacity, not only in-house capacity. It goes to how we approach testing. I mean it's a wide range of operational issues that we can fine-tune and therefore, on the one hand, still be a credible supplier because that's important, right? We don't want to do anything which would give our customers the possibility to escape, if you like. On the other hand, we also need to be mindful and disciplined in how we allocate capital. Fabrizio Ponte: And on the other hand, I mean, we put a lot of efforts also of creating a commercial force, which is now dedicated to bring home revenues. So go out, hunt, bring them back. And I think that's really also a big change, and we're going to continue down the line to become better and better at going out and bring back opportunities that we can serve, okay? So that's a very big change. Unknown Executive: Good. And following up on the cash burn topic. Are you self-funded with your current cash balance? John Andersen: Well, I don't think that we will change the messaging because this refers back to what we did in the first half report. And I think we have no other message at this point in time. You have heard Fabrizio and his plans for the next 60 days. I'm sure that we will look for ways to accelerate. We will look for ways to be more disciplined and not go back to any specific guidance different from what we have already given the market at this point in time. Unknown Executive: How is the diversification progressing? And what are your strategic priorities going forward? Fabrizio Ponte: So I think it's progressing well. I mean we mapped -- we spent, I think, a month together with a consulting firm to put together a thorough map of the opportunities, matching our technology with the different industries. We were able to identify 3, 4 key industries. And now we are focusing on those industries, and we have a go-to-market strategy in every single one of them. We have a single point of accountability for every single industry, and we are now working already with customers on projects and on parts. So they bring back their ideas, their blueprints and we come back with the pricing. And so it's, I think, progressing well, and I'm very, very happy on the execution that we have. We're going to take this now forward in a step up in the coming months. John Andersen: And if I may add to that, we have talked about this also historically. Our value proposition in aerospace and in aerostructures is pretty clear. I mean, the customers are complicated to navigate, as Fabrizio talked about, but our value proposition is pretty clear and our customers value the properties of the parts. In the industrial segment, it's a little bit different. So you need to be more selective in how you identify parts, right? Because our value proposition could be a bit different from industry to industry and from customers to customers. So of course, the Hittech part, it's not like Hittech and the end customer necessarily need aerospace quality for the strength of the material, right? It's really our ability to reuse material consumption. That is the key value proposition that we offer on those particular products, right? So you have to be a bit more mindful about how you approach customer and therefore, this more deliberate approach that Fabrizio just described. Fabrizio Ponte: Yes. And then the positive thing is that, okay, in aerospace, the tailwinds are very clear, okay? So they need to increase their build rates. They need to change their production processes in order to meet those build rates, okay? This is very clear. I can tell you that we see tailwinds also in all those markets. I mean if you can be out there with a technology that is faster, that is more efficient, both from the raw material standpoint and the power consumption and you can work with customer in a nimble and quick way, then you have a very strong value proposition. And we see that across multiple industries, and I'm positive we'll be able to identify the areas where we can be successful fairly quickly because these are, as I said, not as regulated as aerospace. So technically, the development cycle should be much faster. So still technical because we are not in the business, I always say, of potatoes and tomatoes. We are business on selling very technical parts that make a difference and oftentimes are structural. So you need to go through the steps, which is normal for specialty products. But then these are much faster than aerospace, where you have agencies that you need to convince OEMs that you need to align and so on and so forth. Unknown Executive: Good. You began the year with an annual recurring revenue of $12 million. Year-to-date, you have revenue of $2.6 million. And then assuming Hittech represents just a small portion of the annual recurring revenue, what explains this deviation? And maybe also remind people on your definition of annual recurring revenue. John Andersen: And maybe this is a question -- if Ashar is still online, maybe this is a question that you would like to address, Ashar? Ashar Ashary: Yes. Thank you. So yes, so the -- so let's start with the definition of annual recurring revenue. As you can see from this report in Q3 that we are not guiding to an annual recurring number anymore. Hittech is actually not a small portion of that $12.8 million number that we reported. It is actually quite a significant portion of that number because of 2 things. Volumes in 2024 were quite high. And it's a fairly large part as most of you have seen, and the dollar value of that large part was significant. So out of the $12.8 million, it was -- it was a significant -- it's a significant amount -- it was a significant amount of revenue. In 2025, as we have explained in the first half report, that purchase order was dwindled down because of the demand that Hittech was seeing. We do intend to bring that -- we have a purchase order for later this -- in Q4 to deliver parts to Hittech, but it is not at the same level as we were delivering in 2024. John Andersen: And then I think it's fair to say that we will continue to -- reflecting on the essence of the question, right, we will obviously continue to consider also in light of [ Preben's ] previously -- previous advice, what is the best way to guide forward and whether ARR is, in essence, a relevant concept for the industrial segment. I would still argue quite strongly that it's probably a relevant concept for the commercial aerospace segment. But as Fabrizio alluded to earlier, the industrial segment is more transactional in nature. So I think that, that is something that we need to consider in order to provide the best possible guidance to the market. Unknown Executive: And then we have received quite a few questions regarding Boeing and the status of your current relationship and the outlook, I guess. Fabrizio Ponte: I can start. We are delivering parts to Boeing. We are working on a number of development, helping them to learn and improve their knowledge on additive manufacturing. We are going to increase our discussions with Boeing. I've been working with them for a long period of time in another technology. So I will -- I'm bringing that along. I'm positive that there is opportunity there to go beyond the parts that we are already supplying and with all the developments that we have in place to have line of sight to part manufacturing, okay? So no doubt about it. Airbus is our current front-runner. Boeing is there, and I think there is opportunity to be -- to establish our presence very similarly to the one we have at Airbus. Unknown Executive: And then we have received some questions regarding Q4 and maybe order intake. So could you comment on how sales will look in Q4 and maybe comment on budget flush within your defense customers? Fabrizio Ponte: So I think Q4 is going to be also along the line of Q3. We are working very diligently and very actively to bring things home and to make sure that we are prepared for 2026. Defense, as you know, we are delivering parts also in the defense industry to a number of primes. But the development here, this is not here, but the one I discussed before, it's a game changer, not only because they're going to work and validate our technology, but also from the revenue standpoint, as John said, is an important number for us for next year. So it's a multimillion dollar contract that is going to unlock opportunities for parts. So we are extremely excited about this. John Andersen: And just to clarify, it's a multimillion dollar development contract, right, to establish the basis for parts manufacturing. So we don't know exactly how big that platform will be eventually. But I think it shows the commitment of the defense -- of the Department of Defense when they invest a few million dollars in developing this. And that makes us hopeful, as Fabrizio touched upon earlier about the potential there. That's not going to move the needle production-wise in the fourth quarter, just to make sure that we are on the same page. Fabrizio Ponte: But revenue-wise is relevant and... John Andersen: But revenue-wise, it's relevant. Unknown Executive: Then we have a question from [indiscernible]. Can you comment on the Airbus time line? And how do you expect the different steps from here to serial production and revenue recognition? Fabrizio Ponte: So -- okay. Again, difficult for me to provide point of contacts. I'm starting my customer journey at the end of the week. So I wish this question came a month from now. But I can tell you that there are very clear milestones that we know we need to hit, and we know how to get there. It's a matter now to work with Airbus to sort everything out and meet every single milestone in the next weeks/months, okay? So that's -- this is what is happening and where we are currently active. Ashar Ashary: Yes. And I would like to add to that. We are currently delivering Airbus parts that are in serial production. There are 12 part numbers that are in serial production with Airbus that we are delivering consistently right now and recognizing revenue. Unknown Executive: What sales advantages does the September MMPDS provide? John Andersen: First of all, right, this has been in the making for a while. And as you have seen throughout various updates, we have gone through qualification cycles with a number of OEMs, right? And the OEMs, they would typically have their own specification and their own framework and their own process to reach a qualified process or a qualified technology. With this particular standard, to simplify it, right, because MMPDS is a mouthful. But with this particular standard, that allows companies that do not have their own specification, that do not have their own design process for approval to basically use the properties that are in this standard, documented by our technology. So we are the first additive manufacturing technology to go -- that will go into the standard. And this is the go-to book for a number of engineering environments that are looking to bring new technologies into their various industries. So I would say that this is probably particularly important in industrials and also to some extent, in defense. But it really... Fabrizio Ponte: I think also aerospace is critical. I'm personally very excited about this. I mean the MMPDS is the handbook when it comes to metal parts. So as John said, I think this is coming out officially in December. So in December, we are going to be listed officially. We know it's going to happen, but officially is going to come in December. And you're going to read a lot about that because I think we need to give a lot of visibility and make sure that the industry understand how relevant that is. As John said, imagine, I mean, you are an engineer and now you're going to go to the handbook, the MMPDS, where you see that this technology is listed, validated, now you can make parts. And mechanical properties are in there, safety standards are in there. So it's really a game changer from my point of view. And then I think we need to make sure that we leverage that to expand our reach and make sure that engineers start to write specifications based on the standard we're going to have in this handbook. Unknown Executive: Is it possible to leverage this before it gets released in December? Fabrizio Ponte: So it's November 6. So I think we have another 25 days to do that. But what I can tell you is that in anticipation of the release, we are going to work on really a communication campaign to make sure that this is highly visible. And this will be used in the future to make sure that everybody understands that we are listed in the handbook and this can be used to make parts. So it is a game changer also for our [ biz ] development people, okay, so that they can go along with this. Unknown Executive: Okay. Last question from the web. With industrial market set to account for almost 50% of your, I guess, '26 target -- revenue target, what is the anticipated split among the different industrial segments like oil and gas, semiconductor and so on? Fabrizio Ponte: Yes. I think semiconductor will play an important part next year. This is already business that we have, and we are working to expand. We have 2 new parts which are in energy infrastructure. But I think the dominant part will be the semiconductor part. Unknown Executive: Okay. Do we have any last questions from the audience? No? I think that concludes today's presentation. So I would like to thank Fabrizio and John and of course, everyone watching in and being here in person as well. Fabrizio Ponte: Thank you. Thank you very much. John Andersen: Likewise, thank you.
Operator: Hello. Good day. This is RJ, your conference operator today, and we welcome you to the LeMaitre Vascular, Inc. Q3 2025 Financial Results Conference Call. As a reminder, today's call is being recorded. At this time, I would like to turn the call over to Mr. Dorian LeBlanc, Chief Financial Officer of LeMaitre Vascular. Please go ahead, sir. Thank you. Dorian LeBlanc: Good afternoon, and thank you for joining us on our Q3 2025 conference call. With me on today's call is our CEO, George LeMaitre; and our President, Dave Roberts. Before we begin, I'll read our safe harbor statement. Today, we'll be making some forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, the accuracy of which is subject to risks and uncertainties. Wherever possible, we will try to identify those forward-looking statements by using words such as believe, expect, anticipate, pursue, forecast and similar expressions. Our forward-looking statements are based on our estimates and assumptions as of today, November 6, 2025, and should not be relied upon as representing our estimates or views on any subsequent date. Please refer to the cautionary statement regarding forward-looking information and the risk factors in our most recent 10-K and subsequent SEC filings, including disclosure of the factors that could cause results to differ materially from those expressed or implied. During this call, we will discuss non-GAAP financial measures. For example, during the quarter, we recorded a nonrecurring benefit from the receipt of the employee retention tax credit. Non-GAAP adjusted financial measures discussed in our remarks exclude the benefit of the tax credit. A reconciliation of GAAP to non-GAAP measures discussed in this call is contained in the associated press release and will be available on the Investor Relations section of our website, www.lemaitre.com. I'll now turn the call over to George LeMaitre. George LeMaitre: Thanks, Dorian. Q3 featured organic sales growth of 12% and a better-than-expected gross margin. Excluding the onetime tax benefit, we also posted several bottom line records, op income, EBITDA, EPS and cash generation. Q3 sales were led by Grafts, up 23% and Shunts up 18% EMEA grew 18%, the Americas 10% and APAC 4%. Price accounted for 10% of Q3 growth with 2% from units. The April recall led to some customers front-loading catheter purchases into Q2, reducing Q3 organic and unit growth. Ex catheters, Q3 organic growth was 14%. Our international Artegraft launch continues to exceed expectations. Q2 sales were $420,000, Q3 sales were $1.4 million, and now we expect Q4 sales of $2 million. Artegraft grew 33% worldwide in Q3. We expect 2026 Artegraft approvals in Canada and Korea. We received German approval for RestoreFlow in October and anticipate distribution beginning in Q2 2026 as we build German-specific inventory. Inventory for other EU markets will likely not need to be country-specific and can be drawn from our worldwide stock. Irish approval is expected in H1 2026. German and Irish approvals should accelerate other EU approvals. To support the launches, we recently leased a European RFA distribution facility in Dublin. As we look to understand the size of the European market, it's notable that we distributed $2.7 million of tissues in the U.K. over the last 12 months. We ended Q3 with 152 reps after implementing a performance-based reduction of 8 sales reps. We currently have 23 open rep hiring requisitions and expect to have 165 reps at year-end. On November 1, we published our 2026 U.S. hospital price list, reflecting an 8% increase. This is consistent with recent years. As usual, there will be a gap between the price list and prices realized. 55% of our North American revenue is now subject to price floors. Our 2026 international price lists are still being finalized. To support our growth, in Q1, we're opening a 34,000 square foot distribution center near our Burlington headquarters. This is our first meaningful Massachusetts real estate expansion since 2020. 2025 is shaping up to be another year of healthy sales and profit growth. We continue to make investments in our sales force, new international offices and regulatory approvals. We're now guiding 40% op income growth in Q4 and a 29% op margin. I'll now turn the call over to Dorian. Dorian LeBlanc: Thanks, George. LeMaitre's organic growth rate was 12% in the third quarter. Year-over-year reported revenue growth of 11% was reduced by $1.3 million due to our Aziyo distribution exit, but benefited from the weaker U.S. dollar, which added $1 million to reported sales. As George detailed, excluding catheters, Q3 organic growth was 14%. In Q3 2025, we received $4.8 million from the employee retention tax credit. This nonrecurring credit impacted several P&L line items. Reported cost of sales were reduced by $2.7 million. Reported operating expenses net of fees were reduced by $0.7 million and reported interest income was increased by $0.7 million. We also recorded an additional $0.9 million in our provision for income taxes. As a result, reported gross margin was 75.3%, reported operating expenses were $25.6 million. Reported operating income was $20.3 million, reported operating margin was 33%, reported net income was $17.4 million and reported diluted EPS was $0.75. We refer to our adjusted financial results during our call today to exclude this nonrecurring benefit. In Q3 2025, we posted an adjusted gross margin of 70.8%. This 300 basis point year-over-year increase was driven primarily by higher pricing, manufacturing efficiencies and product mix. Adjusted operating expenses in Q3 2025 were $26.3 million, an increase of 9% versus Q3 2024. This expense growth rate is down from a 20% increase quarter-on-quarter in Q2. Higher compensation expenses and European investments in Ireland, Switzerland, Czechia and Portugal drove H1 expenses. As we began to indicate in our Q2 earnings call, we now anticipate adjusted operating expenses decreasing by $4.5 million from H1 to H2. Q3 2025 adjusted operating income was $16.9 million, up 29%, resulting in an adjusted operating margin of 28%. Fueled by our gross margin improvements and operating expense control, 2025 is a year of operating leverage. Op margin has increased over the first 3 quarters, 21%, 25%, 28%, and now we are guiding 29% in Q4. For reference, headcount was 633 at 9/30/2025 versus 637 at 9/30/2024. Adjusted net income increased 27% year-over-year to $14.2 million in Q3 and adjusted fully diluted earnings per share was $0.62, up 27%. We ended the quarter with $343.1 million in cash and securities, an increase of $23.6 million. We generated $28.8 million in cash from operations, and we paid $4.5 million in dividends to shareholders. On August 11, our New Jersey Artegraft facility received an FDA warning letter related to our quality management system. We have provided written responses to the agency's letter, and this has not disrupted our ability to produce, ship or invoice products. We've raised our full year operating income and EPS guidance as our continued focus on profitable growth sets us up for a strong finish to 2025. Our full year revenue guidance is $248 million, 13% growth. We anticipate a full year adjusted gross margin of 70.3% and adjusted operating income of $63.7 million, up 22%. This results in a 26% adjusted operating margin for the year. Our guidance on adjusted fully diluted earnings per share of $2.37 is an increase of 22% over 2024. With that, I'll turn it back over to the operator for questions. Operator: [Operator Instructions] Your first question comes from the line of Michael Sarcone of Jefferies. Michael Sarcone: I guess just to start, mostly good guidance changes. But on the revenue side, it looks like you're now expecting lower organic growth. Can you maybe kind of walk us through the moving pieces there and what's changed? George LeMaitre: Sure, Mike. Thanks a lot. This is George. Obviously, it's a topic here. So maybe we break it down into the Q3 topics and the Q4 topics because obviously, we're, the guidance decrease here, we're halfway into that, right? So in Q3, we think that the catheter recall that we executed in Q2 wound up sort of front-loading sales a little bit more than we expected into Q2 and then it pulled it out in Q3, and we think it will keep pulling it out in Q4. That's a topic in Q3. Export, which we don't talk that much about, didn't have such a great European or APAC quarter in Q3. And then in general, APAC, a little bit of struggles later you're watching. It's only 7% of our sales, but we've had a tough couple of quarters here. And at the root of it, maybe there's some management turmoil. We've reloaded for a brand-new Korea RSM and a brand-new Japanese RSM, excuse me, General Manager in Japan. And so there's been a little bit of that. We don't know if it's exactly the issue, but that's certainly on our plate. And I would say that's your Q3 topic. And then in Q4, I would sort of just repeat what I said about the catheter recall and I repeat what I said about APAC in general. And then 1/3 of the whole thing because we're bringing guidance down by about 1.8% in the quarter, about 1/3 of it is FX. And at the last call on August 6, the euro is at $1.17, now the euro is at $1.15. So that strengthening of the dollar, am I doing this right now? Yes, that change has taken away about $600,000 of sales out of our Q4 guidance. That has nothing to do with us, right? But it's still going to look like the guidance is pulled down. So that's what that is. I hope that's, we obviously expected that question. I hope that's a pretty full answer. Michael Sarcone: Very much so. And I guess just for my second, gross margins, really strong. You talked about 10% price and manufacturing efficiencies as well. I guess when we look forward to 2026, what are the moving pieces that we should think about in terms of how gross margin could change over the course of the year? George LeMaitre: Yes. Mike, thanks. I don't think we're ready to start guiding on '26 yet. But I think you can look at the cadence of gross margin over the last 3 quarters, 69.2% in Q1, 70% in Q2, 70.8% adjusted here in Q3 and our guidance of 71.2%. And you can see that we've been making some progress. The pricing, obviously, is a nice flow-through. Getting Aziyo out, which as you remember, has a distribution-only margin helps us from the mix perspective. You'll hear us talk a lot about Artegraft, I think, again this quarter, really providing a positive impact to product mix as well. And we continue to benefit from some of the manufacturing efficiencies, standard cost basis, it takes sometimes those a little while to flow through. So I think the ramp during the year is a good sign for us. Operator: [Operator Instructions] Your next question comes from the line of Suraj Kalia of Oppenheimer. Shaymus Contorno: This is Shaymus on for Suraj. To start, I guess, one of the things is you guys have been really good at establishing and getting price increases. I noticed during the, you noted that you're getting put an 8% price floor, so to speak, for 2026 in the U.S. hospitals. Just curious, how do you kind of arrive at that 8% versus, say, 7% or 9%, and kind of what are the puts and takes that go into that? Sure. George LeMaitre: That's a great question, Shaymus. Thanks a lot. It's George. I think we're, in the U.S. and then obviously, internationally, when those come along, we don't know those yet. We're always sort of probing in our mind about which categories can take it and which categories can't. And I would say one of the reasons why we try to build a niche type business is because in some of these niches, you can achieve price hikes. So you're pushing harder on those niche categories. And then on some of the commodity categories, the Dacron, the ePTFE, maybe to a certain extent, the catheters where you're lower margins and you're more in combat with other similar devices, we're pressing it a lot less. So that 8% number we're reading to you guys right now is trying to give you a blended number across everything with sort of some of them 10s and some of them 4s and some of them nothing, things like that. Shaymus Contorno: Got it. Appreciate that. And then just kind of 2 smaller ones on mine and then I'll package them together. Would you be able to break out, I guess, year-to-date kind of price versus volume contributions in some various categories we've kind of seen this year? And then also, how much of direct sales of OUS, as you guys have converted contributed this year? George LeMaitre: Okay. Great. So I think I'm going to understand your question, but the back happening is a lot easier. Is your question, what percent of sales are direct to hospital? And if that's the question, I would say 95% is a very clean number that's known by all of us a lot. Is that what you want to get at with the second question? Shaymus Contorno: No. Just looking, I know you guys have converted and gone direct in Portugal, Czech. Just curious how much of that has contributed this year versus that year going direct? George LeMaitre: I would say so far, specifically on Portugal and Czech, it's not meaningful at all. They're very small right now so far. So it wasn't a topic that came up in sales at all for the quarter. And your other question was about units and price. And of course, it's a pretty serious topic for us. In the quarter, it was, on a reported basis, if you will, it was 10% and 2%; 10% price and 2% units. But the way we look at it is without the [catheter] recall, we're sort of normalizing it. So ex that recall, it was 11% price and 3% unit. If you want to draw out from that and not look exactly at Q3 and look at the 9 months of 2025, it was 4.3% units and the balance was price. Last year, it was in '24, it was 4% units. The balance was price. Then the year before that, '23, which was sort of the big year here, it was 5% units. So you can sort of feel like it's a 5% or a 4% or 4.5% these days. Shaymus Contorno: Got it. I appreciate that. And sorry to push it a little on that. I guess as well, could we, can you give us a flavor of where the respective kind of categories are on that price versus volume kind of curve? Grafts has been more price versus volume, Shunts, so on and so forth. George LeMaitre: Okay. I'll give it a shot. We don't exactly look at it like that all the time, but I would say it feels like with Valvulotomes and Shunts, you're feeling it's more of a price topic. And with Patches and Grafts, it feels more like a unit topic. Operator: Your next question comes from the line of Rick Weiss of Stifel. Rick Wise: This is Annie on for Rick. So the first one for me, appreciating that you're not providing any specific 2026 guidance today. Can you highlight any key product lines or geographies that you're particularly excited about now? And sort of as we head into next year, I know you've mentioned Artegraft and allografts as having notable strength this year. So curious if these will continue to be key growth drivers moving forward. George LeMaitre: Right. Annie, it's George again. Yes, I would call those 2 out. And I would then toss into the mix XenoSure, which is part of our patch category, specifically the peripheral vascular segment, but all of XenoSure has been going really well. We have a lot of momentum in it. So I would say those 3 devices. And maybe one of the themes you can, we can draw on is that the biologics at the company are going extremely well right now. We have a lot of momentum in them. And I don't, I definitely don't expect it to change as we go into 2026. If anything, probably some of these European approvals that you're hearing about for Artegraft as well as for RFA and our projection that we're going to get some approvals would lead you to believe that the focus of the growth is probably more about biologics than about synthetics or about transient use single-use devices. Rick Wise: Got it. And then just one more. You ended the quarter with was that $343 million of cash on hand, and we've seen that balance continue to grow over time. So I'm hoping you can share any updated thinking about your capital deployment strategy. Are you thinking more aggressively about M&A? Or just any color here would be very much appreciated. David Roberts: Annie, it's Dave. Yes, it's certainly a nice cash balance. That's a gross cash balance on a net, because we have the convert. On a net basis, it's $170 million. But, in terms of thinking more aggressively, I would say we do like the optionality that the higher cash balance provides us. But on the other hand, I don't necessarily, I don't think the team necessarily feels like, “Oh, gosh, we better get something done quickly” and reduce our own standards for acquisitions. I would say, as I mentioned on the call in August, we've been pretty busy in terms of business development acquisition-related activity this year with term sheets, et cetera. So we're out there hunting, but I don't necessarily feel like having more cash, it's a nice problem to have, if you will, a high-class problem, but I don't think we're relaxing our standards for the types of acquisitions that we'll be doing. Operator: Your next question comes from the line of Nathan Trebeck of Wells Fargo. Nathan Treybeck: My first question, I think in your opening remarks, you disclosed a new metric that 55% of your North America customers are now subject to price floors. Can you help us understand what you're trying to convey by disclosing this? And maybe just talk about your plans to roll out price floors to the rest of your customers? Okay. George LeMaitre: That's a great question there, Nathan. It's George again. Yes. So just to reiterate, 55% of our North American revenue is now subject to price floors. And I think we get this question so much about what are these price floors? How much of the revenue is sort of niche enough that you can put a price floor on it? And we keep having, people keep people keep wanting us to put numbers on it. So we figured we just drag it upfront and get it out instead of it coming out as a question. How much can be priced forward? We don't know exactly. I would say it hasn't gone up that much in the Americas in the last 1 or 2 years. So you might be reaching a place there where the price floors are in on those 55. And then the balance, as I mentioned before, answering another question, maybe some of the other commodity type stuff, you probably wouldn't, it wouldn't be wise to put a price floor on it because they run over the other guys and buy from the other guys. So I just think we're trying to, we've gotten a lot of questions about pricing around here. We always hear it. Dorian and Dave, who do most of the IR work out in the field are always getting these questions, and it would be good just to settle it with that. And that's the genesis of why we put it there. Nathan Treybeck: Great. George, on the last earnings call, you made a comment that you see R&D as a percent of sales increasing back to 8% to 10% over time. Can you talk about how you intend to manage this increased spend against your EPS growth targets? And how should we think about 2026 R&D spend? George LeMaitre: Right. And so as we were prepping for today's call, we were nervous we were going to get a bunch “Hey, you're up margin is too high”. And so there's part of that here, which is the R&D spend is not as high as maybe you want to see right now. What is the percentage? 6% or something 5%, and one of the things we're seeing, it's a very temporal part of our life here is that we just finished all these MDRs and internally, we call it the peace dividend. I guess it's a remark about back in George Bush's day or whatever, but we're trying to convey, we just got this big bolus of expenses, and now it's coming down in R&D around these regulatory approvals for MDR. Almost certainly, somehow some way, that's going to build up with looking for different regulatory approvals elsewhere, doing factory transitions. We still have 2 factories out there, as you know, New Jersey and Chicago and then also plain old-fashioned R&D at some point. So there's lots of ways to deploy the money. It seems unrealistic that we will be down at 5% or 6%. And I think we have room to put it back in given the 28%, 29% op margins that we're talking about. Nathan Treybeck: Okay. If I could just squeeze one more in. So you got RestoreFlow approval in Germany. I think in the past, you talked about the overall European market being $80 million to $100 million. Germany is probably the largest economy there. How are you thinking about this rollout into next year? And is this a big upside lever for where you see Street numbers are right now for '26? George LeMaitre: Right. I haven't looked at Street numbers for '26, so I'm not trying to comment on where they're at or how this helps or doesn't help. I'm just looking at my business. And I would say the Germany approval is great, and it's the most important economy and the most important medical device market in Continental Europe. I think that's very obvious. But there's a little hair ball on it for us in that the German authorities want to see the recovery centers where we get these tissues from all other European countries, we believe, don't really care where we get them from, just like the FDA, sorry, the American Tissue Bank Authority doesn't exactly want to go audit our recovery centers. So with the German thing, it's big, it's huge. We need it to get other approvals. But in the very short term and why we're calling this thing out in the script here is that you have to build German-specific inventory in allografts, and it can only come for now from those 2 recovery centers, and we'll have another 2 recovery centers approved, let's say, by Q3 of next year. So it's a little bit, Germany, we'll see where it goes. It's a little bit hobbled by those recovery center items. But when we get Ireland and then when Germany and Ireland lead to other countries, we don't think there'll be that kind of constraint, and we can draw the inventory off our worldwide bucket. The reason we put in the, and I think this is a market size question at its root also. The reason why we threw in this little stat about the U.K. is we did get our approval in the U.K. in 2022, and we've had 3 years to sort of work the kinks out over there. And last year, in the last 12 months, rather, we sold $2.7 million of tissues. We transferred or distributed is what you're allowed to say, $2.7 million of tissues in the U.K. And it gives you a sense of where we got to after 3 years. It's a great tidbit. I want, Dave, do you have another Canadian number for allograft? I don't have that at my fingertips right now. David Roberts: The Canadian revenue number? George LeMaitre: Yes, because it might be another tidbit here to help people sort of triangulate where Germany would end up. David Roberts: Yes. I don't have it specifically, but I would say qualitatively, we've seen pretty significant uptake of our allografts in Canada, I would say, particularly on the cardiac surgery side. I think some significant percentage of LeMaitre's revenue in Canada is now a cardiac surgery because of allografts. And some of that has to do with the fact that the other market participants aren't in Canada or they have a distributor. And of course, having an allograft at your disposal at the ready in inventory, it's very important. And we feel like that advantage will carry over to LeMaitre's allograft supply chain in Europe, but I don't have the exact figure on me. George LeMaitre: Nathan, did we get at the essence of your question? Or do you want to reask parts of it? Or how do you feel about our answers? Nathan Treybeck: No, I think, is there any way to kind of compare the size of the market in the U.K. versus the German market? George LeMaitre: I can try it. We always assume the German market is bigger than the U.K. I'm going to say I feel like in most medical devices, it's kind of like 50% bigger than the U.K., 75% bigger than the U.K. Operator: Your next question comes from the line of Michael Petusky of Barrington Research. Michael Petusky: George, I didn't catch completely what you said around the sales force. Did you give the number of reps currently? George LeMaitre: Yes, 152 at the end of the quarter with 23 open requisitions still trying to land at 165 at the end of the year. Michael Petusky: Okay. And I do think I caught that you let maybe 8 guys go as well. Like I'm just curious, it seems like a lot, and it seems like a lot of open slots. Is there anything to add there or just the normal course of the business? George LeMaitre: I agree that 23 is a bit on the larger side. But of course, when you let go of 8 folks, it meant we were sort of trying to get 15 more growth territories than we had, as we, you guys have watched us grow the sales force pretty aggressively over the last couple of years. And I think as we've done that and as we've installed, you've heard this story a lot, too, as we installed a lot more regional managers. We've gotten a chance to even take closer looks at the actual reps, even though there's more of them; A, there's more problems at the end of the bell curve, if you will. And then b, we have more inspectors, i.e., we now have 12 RSMs in the U.S. and 3 or 4 area sales managers above them. And I would say going back 2 years ago in the U.S., you had a VP of Sales and 8 RSMs trying to man the whole ship. And now we have a lot more management and they're able to figure out who's not pulling their weight more quickly. So we're always doing that. We're always trying to find who's, how can we do better in a certain region and territory. So that's where the risk, the layoff there of the 8 went to. And then you got to keep growing. And I think we've been on this 165 number for at least 1 phone call, if not 2 phone calls here now. Michael Petusky: Okay. All right. Very good. I didn't catch if you gave an update. Anything to talk about in China, I guess, particularly vascular patch or any XenoSure vascular patch or any other interesting items in China? George LeMaitre: Right, right. So I would say the big update from China is things continue to go well. Sales growth of 40% in Q3 since you're asking about China specifically. And then the negative update is we're really, really struggling to sell the cardiac patches that we got approved last December. So that doesn't feel like a great launch. I think you guys are watching this Artegraft launch in Europe, and it's going great guns. We all know that. We've talked about it a lot. I would say this is the opposite of that. And then to transition to the peripheral vascular XenoSure over, this peripheral vascular bovine pericardial patch over in China. We expect to make our "final filing for the approval in Q4, so within 2 months. And then we're sort of thinking another 2 years until that approval. We believe there are fewer competitors in the peripheral segment than the cardiac segment for patches in China. But we'll see. We have been really excited about that Chinese cardiac patch, and that's not working out too well for us. Michael Petusky: Okay. And again, I may have, forgive me, this is the fifth call I've done today. I may have missed this, but did you say that MDR is completed at this point? Or is it just most substantially completed? George LeMaitre: It's all over except the shouting. We still have one more to get, and it's a minor product line. So we're 21 of '22. Operator: Your next question comes from the line of Brett Fishbein of KeyBanc Capital Markets. Brett Fishbin: I just had a couple of questions. I think you mentioned a target of 165 sales reps exiting 2025, and you just responded to the question about the number of open positions. But I was really just curious maybe how you're thinking about that 165 number looking ahead, it seems like a lot of hiring activity has taken place over the past couple of years. I'm really just interested like where you think that number needs to go over the maybe like medium term, 2026, maybe even 2027 or if this is kind of the right place to be? George LeMaitre: Okay. I think that has some to do with our op margin, which is if you see a pump op margin, this is a fantastic place to invest money. So, I do feel like it's going to want to go up. I don't know how much. I guess we really haven't finalized what happens next year. We got a lot of reps to hire right now. But it's going to go up. The rule of thumb that we sort of we're balancing the op margin, right? We want to pay as you go on these types of investments. We don't want to kill our op margin. But you have dozens of 2 million, you've heard me say this before on the call, so it's a little boring, but we have dozens of 2 million-plus territories in the U.S. alone where you should be splitting them and setting up for growth over the next 2 or 3 years. So, it can get considerably larger. And then this is ex China. If you really, we have 4 reps in China right now. We're hiring a fifth right now, which is barely scratching the surface over there. So, if you really want to go at China, and we do, you can have -- pick a number of 30 to 100 reps over there. So, I would say most of our conversations are taking place without that China topic. But there's a long, long way to go in that 1.3-billion-person country. Brett Fishbin: I appreciate that. I just had one more question. It's come up a couple of times on the call about the OUS Artegraft performance. I was hoping you can maybe just comment on what's gone differently or better than originally expected. I think a couple of quarters ago, you were talking about maybe $2 million for the full year, but obviously doing a little better there. So was it the original expectation was conservative or just getting market acceptance faster than you thought? Any color there would be awesome. George LeMaitre: Great. Well, I love, it's sort of a softball question, so I love doing that. It feels to me like maybe we didn't realize the strength of our channel, and we've been over there for so long in so many countries direct. So maybe we didn't realize the strength of our channel and how quickly they could get to vascular surgeons with this device. I think we were a little bit nervous going in that since it's more of an AV access device in the U.S. And AV access isn't really that typical over in Europe. They use the patient's native fistula to do the work rather than implanting prosthesis like the Americans do. So, and we're learning that, oh, well, maybe it doesn't get used for AV access over there, but maybe it gets used for peripheral bypasses. And so they're finding customers faster than we thought. The doctors love it. We're getting great reports. And then there's been a wildcard in this international thing in that South Africa, which does use Grafts for AV access has exploded in terms of sales. And so you got, basically, it's Europe and South Africa. And I think South Africa to give you some $300,000 in Q3 alone. So something huge has happened in South Africa. We've had the same dealer forever. They're an excellent dealer, and they have 50 or 60 reps down there. And it is a large country. I think it's 55 million people in South Africa. So you've got that helping out with the European launch to help it all go a lot better than expected. And I hope that's a good answer. Operator: Your next question comes from the line of Jim Sidoti of Sidoti. James Sidoti: Can you give us the operating income and the CapEx in the quarter? George LeMaitre: Yes. Cash flow from operations, Jim, was $28.8 million, and the CapEx was $2.3 million. James Sidoti: And the increase in the share count, is that related to the share price? And is that where you expect it to be in the fourth quarter? George LeMaitre: The increase in the share count for the, on a reported basis, Jim, for the first time, the convert was not anti-dilutive. So if you look at our Q, which we'll file tomorrow morning, you'll see the reconciliation, and we did have to bring in some of the convert shares on a converted basis. So that was a minor point that you'll see in the Q. Overall, I think you can expect that each quarter, we're adding to share count through employee equity. And the fourth quarter is actually the largest quarter. We do a lot of grants in the fourth quarter. So then you've got a lot of vesting dates for restricted stock in the fourth quarter. So it will be up marginally in the fourth quarter due to the employee vesting. James Sidoti: All right. So around in that 24.5 million shares. George LeMaitre: No, it won't be up that high. I think we're at 23.5% now. It will be maybe 24%, Jim, probably closer. James Sidoti: Okay. Because on the press release you're 24.392. Operator: Your next question comes from the line of Kyle Bauser of ROTH Capital Partners. George LeMaitre: Hey RG, one second. Let's finish off Jim's question before we move along. Sorry about that, Kyle, but let's pause to get a decent answer here or maybe we get back to Jim with more data. Yes. Jim, we're at 24.392, you're right, 24.392 here off the wrong page. And you probably expect that to go up to 24.5%. I think that's what you said. So you're right on, Jim. My apologies. Jim, are you all set with questions? You want to go after something else? Operator: Your next question comes from the line of Kyle Bauser of ROTH Capital Partners. Kyle Bauser: Okay. Great. So some really nice sales growth, of course, across key product categories here. Just looking at volume increases, can you speak a bit more about the makeup of this growth, I guess, in terms of new accounts versus higher utilization within existing accounts? I think you've got like 12,000 surgeons you're calling clients, and I think there's a TAM of maybe 22,000 vascular surgeons out there worldwide. Just, I know there's a lot going on in terms of flipping from distributor to direct and new launches, et cetera. Just trying to get a sense of the kind of growth mix profile of new business versus higher utilization in existing business? George LeMaitre: Kyle, before I get to that question, just a quick welcome to you and Ross reinitiating coverage. It's great to have you along for all these calls. As to your question, I don't have a great answer for that, to be honest with you, and I don't want to speak off the tip of my tongue here. I could come back to you separately as to you're looking for, does the unit growth come from new accounts or more utilization at the current accounts? Is that sort of the essence of the question? Kyle Bauser: Yes, exactly. George LeMaitre: Yes. I honestly don't have a good answer for you. Dave, anything? David Roberts: Kyle, it's Dave Roberts. I would say I don't have a firm answer, but I would tell you directionally, in the U.S. and North America, maybe less new accounts, whereas in Europe, and in Europe, particularly due to Artegraft and a little bit the U.K. allografts, those are a little bit more new accounts. And then Asia Pac, which is our newest region of the world, let's say, where we have gone direct in some new countries like Thailand and Korea, et cetera, probably a little bit more tilted towards the new account Greenfields over there. Kyle Bauser: Okay. I appreciate that. And I appreciate the welcoming as well. We're excited to be following the name; also some really nice margin improvement here, both in gross margin and operating margin. You talked about manufacturing efficiencies and moderations of OpEx. Just trying to get a sense of the types of, maybe more specifically the manufacturing efficiencies and examples of moderating the operating expense, just to understand what still remains above and beyond kind of just economies of scale, if you will. David Roberts: Yes, Kyle, I think scale does help in several of the businesses, especially the businesses that are growing fast. We've talked about RestoreFlow benefiting from scale as that has ramped up. And I think we're, we have been working pretty diligently on efficiencies across the expense base. So we had some manufacturing efficiency projects around automation that have paid off that's allowed us to reduce overall direct labor headcount. We're working on more of the commercial operational efficiencies around logistics and shipping as well that we think will continue to pay off for us. George mentioned just better management of the sales reps and some performance-based management there. I'd say that stretches across the employee base in general. And we have been focusing on just delivering operating leverage in the back half of 2025. So I think all of those have helped contribute to the strong op. Operator: Your next question comes from the line of Daniel Stauder of Citizens. Daniel Stauder: I had 2 quick ones. So first, I wanted to ask on the open cardiac call point. I think you commented it was particularly strong last quarter. I think that has to do with RestoreFlow. So I was curious what you saw in 3Q in terms of performance? And more broadly, are there any trends in this area that are playing out into the end of the year and into 2026 that you think are interesting or we should keep top of mind? George LeMaitre: Yes. And I'm glad you bring up the Q2 topic because Q3 was just almost a repeat performance. If you look at allograft, it grew about 56% on the cardiac side and about 14% on the vascular side. So you have the same type of dynamics going on. In general, the cardiac allograft business is growing a lot faster than the peripheral vascular allograft business. We like both of the businesses, but we're newer to cardiac. And oddly, we don't put as much emphasis on cardiac. I think our sales force feels as though it's a peripheral vascular sales force and this cardiac thing is sort of a new thing for them. So oddly, there's less attention on it by the sales reps, but the results in this one particular category are a lot better with cardiac. And it's a little bit led by the U.K. and Canada. And now another theme here is that the Canadian results are sort of starting to come down into the United States as the new manager of the sales force is Canadian. He's been here for 1.5 years, but he's just getting going here, and he's Canadian, not American. So he's bringing some of his bag of tricks up in Canada down to the states. Daniel Stauder: Great. Appreciate that. And just one follow-up on Carotid Shunts. Just on the quarter, was there anything that was driving that 18% growth? I think looking back, the year-over-year comp was actually pretty difficult at 22%. So I just wanted to see if there was anything that was specific to 3Q? And then just a little bit more broadly, I feel like carotid shunt gets called out 2 or 3 times a year, 2 or 3 quarters a year just having double-digit growth. So longer term, how do you think about this product? How should we think about this product? And anything on the market or its long-term trajectory would be great. George LeMaitre: Sure, sure. I think at its root, we're still benefiting from the fact that BARDA left the business, particularly in Europe, but also in the U.S. about 1.5 years to 2.5 years ago. And in Europe, we've been left with an extremely high market share where we're able to sort of do what we want with pricing; in the U.S., it's not quite as nice as that. Our market share is more down in the 20s and 25s. And so it's not quite as flexible. But it feels more like a European thing. And I think they left us with a nice position. And I think you're seeing that in terms of units and also a lot of pricing flexibility on that product line. So yes, you're right to say it keeps coming up a lot over the last 2 or 3 years. So it stands to reason because of BARDA exiting. Operator: That ends our Q&A session, and we appreciate your participation. Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Hello, and welcome to today's Warby Parker Inc. Third Quarter 2025 Earnings Conference Call. My name is Bailey, and I will be your moderator for today. [Operator Instructions] I'd now like to pass the conference over to Jaclyn Berkley, Vice President of Investor Relations at Warby Parker. Jaclyn, please go ahead. Jaclyn Berkley: Thank you, and good morning, everyone. Here with me today are: Neil Blumenthal and Dave Gilboa, our Co-Founders and Co-CEOs; alongside Josh Truppo, Vice President of Financial Planning and Analysis. Before we begin, we have a couple of reminders. Our earnings release and slide presentation are available on our website at investors.warbyparker.com. During this call and in our presentation, we will be making comments of a forward-looking nature. Actual results may differ materially from those expressed or implied as a result of various risks and uncertainties. For more information about some of these risks, please review the company's SEC filings, including the section titled Risk Factors in the company's latest annual report on Form 10-K. These forward-looking statements are based on information as of November 6, 2025, and except as required by law, we assume no obligation to publicly update or revise our forward-looking statements. Additionally, we will be discussing certain non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for measures of financial performance prepared in accordance with U.S. GAAP. A reconciliation of our non-GAAP measures to the most directly comparable U.S. GAAP measures can be found in this morning's press release and our slide deck available on our IR website. And with that, I'll pass it over to Neil to kick us off. Neil Blumenthal: Thank you, Jaclyn, and good morning, everyone. Q3 was a strong quarter on many fronts, reflecting both top line acceleration and significant progress towards our long-term profitability goals. Net revenue grew 15.2% year-over-year, driven by 20% growth in retail revenue. Adjusted gross margin was 54.2% and adjusted EBITDA grew approximately 50% to $25.7 million, representing an 11.6% adjusted EBITDA margin and 260 basis points of year-over-year expansion, our highest quarterly expansion in the last 2 years. It was also a quarter that reflected shifting consumer trends, particularly within our single vision and contacts customer base, which tends to skew younger, while we have seen more resiliency from our progressives customers. We entered the quarter with strong momentum. July and August represented the strongest 2-month period of the year before trends moderated in September and have remained consistent. We saw a mix shift within glasses that weighed on average selling price, while contacts growth decelerated as broader consumer sentiment softened. Performance remained consistent on a 2-year stack basis, even as we lapped an acceleration in growth last year. Volume growth remained healthy, and we delivered adjusted EBITDA profitability ahead of our guidance on lower-than-planned revenue, underscoring the adaptability of our business and our team's strong execution. Based on the trends we've seen since September, we are reaffirming our 2025 adjusted EBITDA outlook and raising our adjusted EBITDA margin expectations, reflecting continued operational discipline and AI-driven productivity gains even as we take a more measured view on revenue given the current macro environment. And as we look beyond 2025, we're incredibly excited about what's next. We believe we are entering Warby Parker's third act. Our first act was to establish one of the first made-on-the-Internet lifestyle brands. We launched with features in GQ and Vogue and pioneered how to sell glasses online. Our second act was characterized by our expansion into bricks and mortar, becoming the industry's first true omnichannel retailer while entering holistic vision care by providing eye exams and contacts. And now we're entering our third act, defined by innovation through AI. We plan to leverage AI to develop new products like AI glasses, to enhance our customer and patient experience like our homegrown first true to scale virtual try-on that now encompasses features like glasses eraser and adviser and to drive productivity and accelerate EBITDA expansion. We previously announced that we'll be working with Google to bring intelligent eyewear to market and are excited to share that we're partnering with Samsung as well. We believe that Samsung's innovation in hardware and their mobile device ecosystem, combined with Google's leadership in AI and Warby Parker's strength in design, eye care and customer experience unlock enormous potential to create beautifully designed intelligent eyewear that seamlessly integrates into everyday life. We look forward to sharing more details in the coming months. Dave and I just got back from Colorado, where we hosted our annual One Vision Summit. For several days, we brought together over 500 retail leaders and optometrists across our team for strategizing, training and team building. We shared our vision to leverage AI to develop new products, enhance the customer experience and drive productivity. We walked away feeling energized and inspired by their ideas, their camaraderie and their passion for delivering best-in-class customer experiences, which is paramount as we head into our busiest time of the year. Our retail leaders and doctors typically join Warby Parker because of our track record of innovation and best-in-class technology, and they have grown accustomed to our rapid growth and are the most tech-forward leaders in the category. It's events like our One Vision Summit that makes us more confident than ever in the foundation we're building for the next chapter of Warby Parker. We operate in a large and resilient market with an unmatched value proposition and believe we are well positioned to continue taking market share for many years and decades to come. Our long-term priorities remain unchanged, but our ambitions have only grown. We continue to make meaningful progress in our core business, including achieving significant leverage in our expense base while also investing in AI glasses, an opportunity that will expand our TAM beyond traditional glasses and define the next era of our brand. I'd like to call out a few Q3 highlights that demonstrate our ability to continue on our path of sustainable growth. We delivered our highest glasses volume growth of the year alongside our ninth consecutive quarter of accelerated active customer growth. Retail and especially our eye care business were bright spots with record retail productivity and our largest ever quarter for new store openings, including our first 5 Target shop-in-shops. We also completed a major system upgrade in our optical labs to support future growth, faster delivery times and enable us to eventually fulfill AI glasses. We expanded the use of AI across our operations to improve efficiency and empower our teams to spend more time with customers. We're confident in our ability to navigate the near-term environment while we embark on our next act, one defined by even more personalized experiences, intelligent eyewear and a relentless focus on profitable and sustainable growth. As we head into our busiest season, our teams are focused on what we can control, delivering the exceptional customer experience and remarkable value that have come to define Warby Parker. Before Josh walks through our financials and guidance, Dave will recap the drivers of our Q3 performance. David Gilboa: Thanks, Neil. As we move into our next act, we remain excited about the opportunities ahead in our core business. Our Q3 performance demonstrates our commitment to driving sustainable growth and steady progress toward achieving our long-term strategic goals. I will now speak to our 4 primary growth drivers this quarter, beginning with the drivers behind our ninth consecutive quarter of accelerating active customer growth. We ended Q3 with 2.7 million active customers, an increase of 9.3% on a trailing 12-month basis with average revenue per customer of $320, up 4.8% year-over-year. Our retail channel remains our primary growth engine, and we continue to see strong customer acquisition through our stores. Our marketing strategy continues to balance disciplined performance marketing with thoughtful investments that build long-term brand awareness. To drive near-term transactions, our flexible media model allows us to allocate capital in real time to where we're seeing the strongest efficiencies, such as streaming and direct mail. To build community and brand affinity at the local level, we continue to host creative localized programs like our book Report series, which brings notable authors like Nighttime Grammy Award winner, Mark Ronson, into our stores for engaging events and conversations with customers. At the same time, we continue to invest in top-of-the-funnel initiatives, including our 3-year partnership with Arch Manning, a glasses wear since age 3 and the Warby Parker customer since middle school. This partnership has allowed us to participate in national linear media and connect with a younger demographic, particularly in key markets across the Southeast. Our "It Must Be the Glasses" campaign featuring Arch has been a fun way to bring our literary focused brand personality into the sporting world and highlight Arch's authentic connection to our brand. It's been very well received, helping broaden our audience and drive meaningful impressions. We're pleased to see consistency and stability in our customer acquisition costs even as we've increased our marketing investments. And by sunsetting our Home Try-on program, we will have even more flexibility to invest in awareness driving initiatives like these. Meanwhile, customers utilizing insurance benefits with us continue to grow in Q3 with Versant lives ramping in line with expectations ahead of the typical year-end increase in benefit usage. Insurance customers remain among our highest value cohorts, spending more on initial purchases, selecting progressives at higher rates and returning more frequently. We're continuing to highlight this message in stores and across our creative to increase awareness that customers can use both their in-network and out-of-network benefits at Warby Parker. Finally, we're pleased to report consistent revenue retention metrics across cohorts with revenue retention of approximately 50% over 24 months and over 100% over 48 months, underscoring the loyalty of our customer base. The next driver of Q3 performance we'll speak to is the acceleration we drove in our glasses business. Glasses grew 13% year-over-year, up from approximately 10% in the first half of 2025, driven by both healthy unit growth and average selling price. In Q3, we launched 5 new collections and continue to expand our lens portfolio. Highlights include our Tortoise Color Block collection starting at $95, which demonstrates our ability to deliver exceptional design at our core price point and the Strato Series starting at $195, featuring elevated Italian construction with etched metal layered between crystal acetates. We also introduced new sun and light responsive lens colors. Newness across both frames and lenses continues to drive customer engagement and repeat purchasing. We continue to be pleased with how customers have responded to the pricing actions we took earlier this year, primarily in progressives and lens add-ons. While we see strong and consistent adoption of lens enhancements and add-ons, our $95 frame styles outperformed relative to higher price points, which impacted average selling price for the quarter. While recent category growth has relied on price increases, we believe our focus on designing stylish products and delivering exceptional value and experiences positions us to grow both market share and customer loyalty over the long term. The third driver of our Q3 growth was the strength of our highly productive store base. Retail revenue grew 20% year-over-year, driven by a 16% new store expansion over the same period and continued healthy growth of our stores opened 12 months or more, consistent with the color we've provided on prior calls. In Q3, we opened 15 new stores, including our 300th store at Brookfield Place in Manhattan and our first 5 shop-in-shops at Target. In total, this represented the highest number of openings we've completed in a single quarter. We opened stores in 12 suburban markets, including in San Diego, California; Arlington, Texas; and Jacksonville, Florida, and we see significant opportunities to continue infilling underpenetrated markets like these. More than half of the major metropolitan areas where we operate still have only one store, giving us a meaningful opportunity to expand within existing markets while continuing to enter new ones. A complementary part of our strategy to continue infilling markets is our partnership with Target. We're really pleased with how the first 5 shop-in-shops turned out. Each is a beautifully designed, fully enclosed space that brings the Warby Parker experience to life across several markets in the Midwest and Mid-Atlantic. Looking ahead to next year, you should expect us to open a similar number of locations as we continue testing in-store placement and markets. Our focus remains on ensuring these locations deliver a consistent Warby Parker experience while helping drive brand awareness and reach new customers. I want to take a moment to highlight our store teams, many of whom we had the pleasure of seeing last week, as Neil mentioned. We're fortunate to have experienced leaders across our retail organization with roughly 60% of our current store leaders having been promoted into their roles. We believe that our ability to attract, develop and retain great talent sets us apart and remains a key driver of our retail success going forward. As we look across our differentiated omnichannel model, we're also seeing clear benefits from our densification strategy in that markets with the highest number of stores frequently have the highest e-commerce growth driven by greater brand awareness and customer engagement across channels. As we shared on our last call, we're evolving how we serve customers across channels as we expand our physical footprint and invest in AI-driven tools and have decided to sunset our Home Try-on program by the end of the year. Beyond creating a more seamless customer experience, the shift also allows us to streamline our marketing messages. While still early days, we continue to see healthy year-over-year growth in direct e-com frame purchases as the Home Try-on headwind diminishes. We're encouraged by the engagement and conversion we're seeing from AI-powered tools like Advisor, which gives us confidence in our ability to drive the channel long term. Lastly, we continue to expand our holistic vision care offerings as part of our broader strategy to serve all of our customers' needs. Contacts remained a healthy contributor to growth in Q3, but moderated in the months of September and October. In Q3, contacts grew 21% year-over-year and represented 11.5% of revenue, consistent with the prior quarter, yet well below the approximately 20% industry mix average, underscoring the significant runway ahead. As part of our ongoing evaluation of how to best serve customers, we made the decision to retire Scout, our private label contacts brand. Scout helped us successfully enter the contacts category, which we've since expanded to include dozens of leading third-party brands that provide customers with more choice, value and convenience. Our decision to sunset offerings like Scout and Home Try-on reflect our focus on aligning with customer preferences and evolving technology while also simplifying operations and positioning us to be more agile with less inventory going forward. Eye exams also remain an important driver of growth. We expanded exam capacity across our growing retail footprint. And in Q3, our eye exam business grew 41% year-over-year to account for 6.5% of total revenue. Eye exams drive traffic, conversion and average revenue per customer, given roughly 75% of glasses industry-wide are purchased at the same location as the exam. Today, the majority of our customers still bring prescriptions from external providers, highlighting a significant long-term opportunity to capture more of the vision care journey. We also scaled retinal imaging across more locations, an offering that enhances the clinical experience and reflects our commitment to accessible high-quality vision care. Alongside the progress we made across the business this quarter, making a positive impact remains at the heart of what we do. Through our People's Project program, we continue to provide free eyeglasses to students in need in more than 40 U.S. cities. With the support of our partners, we're proud to announce that we'll be doubling the number of students served in Baltimore, Newark, New Jersey and Washington, D.C. and expanding our reach in Boston to serve the entire public school district. We plan to distribute an additional 40,000 glasses to students in these communities over the next 2 years. And now I'll pass it over to Josh Truppo, VP of Financial Planning and Analysis. Unknown Executive: Thanks, Neil and Dave. It's my pleasure to join you all today on our third quarter earnings call. I'll begin with a detailed review of our third quarter performance. Then I'll outline our updated guidance for the full year, including our outlook for the fourth quarter of 2025. Starting first with Q3. Revenue for the third quarter came in at $221.7 million, up 15.2% year-over-year. Retail revenue increased 20.2% year-over-year with store count up 16.4% and e-commerce revenue up 3.2% year-over-year. I'd like to add a bit more context around the shape of the quarter. We entered Q3 with strong momentum with July and August marking our strongest 2-month stretch of the year before trends began to moderate in September and have remained consistent. During this time, our frame mix shifted towards our entry-level $95 offering. And while higher-priced lens modifications and progressives remained strong, this had an overall impact on average selling price for glasses. Additionally, we saw slower growth in our contacts business amid broader macro dynamics. These factors coincided with stronger year-over-year comparisons given the acceleration we saw last year, though results remained stable on a 2-year stack basis. Looking at customers, we finished Q3 with 2.66 million active customers on a trailing 12-month basis, representing a consistent acceleration in growth to 9.3% year-over-year. We've now seen sequential improvements in year-over-year active customer growth for the past 9 quarters, reflecting the positive returns from both new and existing stores, marketing investments and a range of strategic initiatives. Average revenue per customer increased 4.8% year-over-year on a trailing 12-month basis to $320. This was driven by factors, including our selective price increases in glasses at the end of April, a higher mix of premium lenses like progressives and continued growth in both contact lens and eye exam sales, partially offset by the mix shift into lower price point frames we described earlier. Progressives penetration within prescription units increased 30 basis points from 22% in Q3 2024 to 22.3% in Q3 2025. By product, glasses revenue growth accelerated to roughly 13% year-over-year, with contact lenses up 21% and eye exams up 41% year-over-year. Contacts increased from 10.9% of revenue in Q3 2024 to 11.5% in Q3 2025. Eye exams increased from 5.3% of revenue in Q3 2024 to 6.5% in Q3 2025. From a channel mix perspective, retail represented 73% of our overall business in Q3. We opened 15 new stores in the quarter, ending the period with 313 stores. This represents 44 net new stores opened over the course of the last 12 months. Retail productivity was 103.8% versus the same period last year. As a reminder, we define retail productivity as the year-over-year change in retail sales per store for the average number of stores opened in the period. We are pleased to be reporting our highest quarterly retail productivity since 2022, which was driven by stronger glasses growth paired with continued momentum in our contacts and exams businesses in stores. For stores that have been opened greater than 12 months, we observed an acceleration in year-over-year growth in Q3. Our new stores continue to deliver strong unit economics, performing in line with our target of 35% 4-wall margin and 20-month paybacks. For stores opened more than 12 months, average revenue per store was $2.2 million and performance was in line with our target 35% 4-wall margins. We continue to be pleased with both these new and existing store metrics, which reflect the overall health and productivity of our store fleet. Over the course of the past year, nearly every new store included an eye exam suite, bringing our total number of stores with eye exam capabilities to 275 stores or 88% of our total fleet. Moving on to gross margin. As a reminder, our gross margin is fully loaded and accounts for a range of costs, including frames, lenses, optical labs, customer shipping, optometrist salaries, store rents and the depreciation of store build-outs. Our gross margin also includes stock-based compensation expense for our optometrists and optical lab employees. For comparability, I will speak to gross margin, excluding stock-based compensation. Third quarter adjusted gross margin came in at 54.2% compared to 54.6% in the year ago period. The year-over-year decrease was driven by tariff-related headwinds in glasses, sales growth of contact lenses and customer shipping. These impacts were partially offset by the selective price increases in glasses and increased penetration of progressive lenses and other lens enhancements. We were particularly pleased with the margin expansion in our eye exam business, which has become less of a headwind over time as we become more efficient with doctor coverage and utilization. Shifting gears to SG&A. As a reminder, adjusted SG&A excludes noncash costs like stock-based compensation expense. Adjusted SG&A in the third quarter came in at $108 million or 48.7% of revenue. This compares to Q3 2024 adjusted SG&A of $100.6 million or 52.3% of revenue, representing 360 basis points of leverage year-over-year. Within adjusted SG&A, marketing spend was $29 million or 13.1% of revenue compared to $23.7 million or 12.3% of revenue in Q3 2024. With marketing spend in the low teens as a percent of revenue, disciplined expense management drove leverage across our non-marketing adjusted SG&A categories which includes salaries for our stores and customer experience employees and general corporate expenses, including our headquarter salaries and general operating expenses to support the business. Non-marketing adjusted SG&A improved by 440 basis points from 40% of revenue in Q3 2024 to 35.6% of revenue in Q3 2025. Non-marketing adjusted SG&A grew just 3% year-over-year. This reflects our commitment to continued cost discipline and drove flow-through in Q3 above the high end of our guidance range. Turning now to adjusted EBITDA. In the third quarter, adjusted EBITDA grew approximately 50% year-over-year to $25.7 million, representing an adjusted EBITDA margin of 11.6%. This compares to adjusted EBITDA of $17.3 million or 9% of revenue in the year ago period, reflecting expansion of 260 basis points. As discussed, this was driven by non-marketing SG&A leverage. Turning now to our balance sheet. We ended the quarter with a strong cash position of $280 million. While free cash flow during the quarter was impacted by the timing of vendor payments and inventory purchases, we have generated $36 million in free cash flow year-to-date and anticipate full year 2025 will be our third consecutive year of positive and accelerating free cash flow. As it relates to capital allocation, we will continue to deploy capital deliberately to support our growth in operations. We also have a credit facility of $120 million, expandable to $175 million that is undrawn other than $4 million outstanding for letters of credit. Turning to our outlook for 2025. Starting briefly with an update on tariffs. We've successfully executed the mitigation strategies we outlined on our prior [ quarterly ] calls, including supplier diversification, selective price adjustments and disciplined expense management. These actions have offset the impact of tariffs and demonstrate our team's ability to adapt quickly in what remains a dynamic environment. Together, they contributed to incremental flow-through in Q3 and give us confidence to hold our full year adjusted EBITDA guidance. Given recent trends and the more uncertain consumer environment, we're taking a more conservative view on top line for the remainder of the year, which assumes that September and October trends persist. We remain committed to delivering adjusted EBITDA dollars in line with our prior outlook and now expect to deliver higher year-over-year adjusted margin expansion on a modestly lower revenue outlook. We now expect net revenue between $871 million and $874 million, representing approximately 13% growth year-over-year, adjusted EBITDA of $98 million to $101 million, representing an adjusted EBITDA margin of 11.3% to 11.6% and 180 to 210 basis points of year-over-year expansion; 45 new stores, including the 5 Target shop-in-shops that opened in Q3. We continue to expect full year gross margin in the mid-50s, reflecting stability in our ongoing tariff mitigation strategies discussed earlier. Finally, we expect stock-based compensation as a percentage of net revenue to be in the 2% to 4% range for the full year, consistent with our long-term target. For Q4 2025, we're guiding to the following: net revenue between $211 million and $214 million, which represents growth of approximately 11% to 12% year-over-year; adjusted EBITDA of $18 million to $21 million, representing a 9.2% margin at the midpoint of our range or 190 basis points of year-over-year expansion. Similar to our year-to-date results, we anticipate adjusted EBITDA margin expansion in Q4 will be driven by leverage within non-marketing SG&A, supported by ongoing efficiencies in staffing our store and customer experience teams and achieving continued leverage in corporate expenses while keeping marketing spend consistent. With that, Neil, Dave and I are pleased to take your questions. Operator, please open the line for Q&A. Operator: [Operator Instructions] Our first question today comes from the line of Mark Altschwager from Baird. Mark Altschwager: Was hoping you could give a bit more color on this mix shift you're seeing with single-vision versus progressives. I think you cited relative resiliency with the progressive customer, but also called out a mix shift that weighed on ASP. So just want to understand the moving pieces there. And I guess wondering just within that, are you seeing evidence that some of the price increases on the premium lenses might be driving some trade down in the frame selection? David Gilboa: Thanks, Mark. As you've heard from a number of other brands and retailers, it's been quite a volatile year, and we've seen meaningful swings with periods of broad strength across consumer cohorts and then other periods when consumer sentiment has taken a dip. And in those weaker periods, it's been younger and low income consumers who have been most impacted. Now as a category, we're more insulated than others because of the needs-based nature of the products and services we offer, and more specifically with Warby Parker, our customer base tends to skew higher income, but we do serve a cohort of younger customers who are increasingly feeling uncertain about their future and are being more selective in their purchasing behavior. And so if you look at this quarter, we entered Q3 with strong momentum. July and August were our strongest 2-month stretch of the year before we did see some shift in trends in September. And while we've still been driving healthy year-over-year growth and consistency on a 2-year growth basis, we've seen a moderation in average order value or basket size in categories that skew younger, like single-vision with more of a shift to $95 frames versus some of our higher price point frames, fewer multiunit orders on the glasses side, and lower quantities of contact lenses per order, including fewer customers purchasing annual supplies. Within our older demographic and our progressives customers and higher-income consumers, we're seeing consistent behavior. And in the areas that we did take some price earlier this year, including progressives and lens treatments, we really haven't seen a shift and continue to see resiliency in that cohort. Mark Altschwager: Just maybe as a follow-up, just in light of all of these shifts and some of the near-term volatility, I know you're not guiding to 2026, but could you just refresh us on how we should be thinking about the growth algorithm here? Is mid-teens still the right expectation? And how are you thinking about the balance between active customer growth versus rev per customer? Neil Blumenthal: Thanks, Mark. This is Neil chiming in. We're still aligned to our long-term growth algorithm. And if anything, we continue to have more confidence in our ability to expand the EBITDA. And as part of that algorithm, we've always said 100 to 200 basis points of expansion per year. Long-term, we think we're a 20% adjusted EBITDA business. That being said, as you see in the high end of our guide, we're at 210 basis points for this year. We continue to see great leverage across our corporate expenses, including CX. For next year and for the foreseeable future, we anticipate marketing as a percent of revenue staying consistent. So we continue to have faith and confidence in the category and in our customers. We have now come to expect just volatility as I think any operator has over the last few years. And certainly, our customer is relatively wealthy. And as Dave alluded to, median income above $100,000. As we continue to open stores, they tend to be more in suburban areas. So we still are underpenetrated for that 45-year-old plus customer that buys progressives. So yes, you should still assume high growth for us next year and beyond. Operator: The next question today comes from the line of Oliver Chen from TD Securities. Oliver Chen: Regarding the mix shift and what you're seeing, does that change the product road map or how you think about marketing and what you're thinking about the composition that you may see within the guidance? And is that still happening? Or is it resting at a point that -- where you have visibility in terms of the ASPs? And second, on the AI initiatives, what would you highlight as your favorite ones for driving productivity and scalability that's impacting many parts of the organization? And finally, on the insurance customers and opportunities, what's ahead there in terms of continuing to drive awareness as well as key goals? That would be great. Neil Blumenthal: Thanks, Oliver. From a product road map perspective, some of this short-term softness that we're seeing with some of our younger customers is really not driving changes for our product road map. We continue to introduce different lens options that we find resonates with both younger and older customers. So we're very confident in the product road map, and we continue to be able to respond much faster than a lot of our competitors because of the vertical integrated nature of our business. Typically, we'll introduce 15 to 20 collections per year, and we're not beholden to the fashion calendar or the wholesale calendar and can even make adjustments midyear as necessary. As we think about efficiency gains, thanks to AI, there are a few that we're particularly excited about, whether we're using AI in our eyewear design process and even evaluating technical designs as we leverage AI as part of our customer journey flow and some of the work of our CX teams, as some of our brand and creative teams are leveraging new tools to bring down the cost of content creation, in particular, as we think about photo shoots and a lot of the production costs that go into the sheer number of shoots that we do per year, we're already seeing some savings there. The other thing that I would add is that, every corporate team member is using often multiple AI tools per day, and we're finding increased productivity right across our headquarters team. David Gilboa: I'd also just add that we're increasingly using AI to drive customer engagement and growth, including with features like adviser that we introduced on our app and across our site, where AI is used to recommend glasses based on a user's face shape and features and what we know about them. And we've seen just really strong adoption and increases in conversion and are excited to continue to lean into tools like that. And then on the insurance front, we continue to be pleased with the progress that we're making there. This is an area of high growth for us, where we could now offer in-network benefits to more individuals than ever, where we're seeing strong adoption from the newest members of the Versant cohorts that are using their benefits with us. But the vast majority of those members still have not shopped with Warby Parker. And so we're spending a bunch of time creating awareness around the fact that we do have these integrations in place. And then longer term, we also have several pilots underway with larger carriers that we're not in network with yet that we'd like to be and are also just making it easier for people to use their out-of-network benefits with us, understanding at the point of sale, what their exact reimbursement will be and making that purchase process as seamless as possible for our customers. Operator: Our next question today comes from the line of Brooke Roach from Goldman Sachs. Savannah Sommer: This is Savannah Sommer on for Brooke Roach. You touched on it a bit already on the call, but I wanted to dig into the Target shop-in-shops. With 2025's cohort being open for a few months now, could you discuss how early performance has compared to your initial expectations? And as we think about the planned openings you mentioned for 2026, how are you identifying the right markets for these shop-in-shops particularly in your relation to the broader suburban densification strategy for the core Warby fleet? Neil Blumenthal: It is early days in our partnership with Target, and we're excited to report that expectations --our performance are in line with expectations. The 5 shop-in-shops that we've built and opened are beautiful and deliver the same exact Warby experience as in a stand-alone Warby store. We plan to continue at this pace next year as we learn. That's just a philosophy at Warby Parker is to test, learn, expand rapidly. One of the things that we're looking at is also just even placement within a store, whether that is in line or on the pad in the center of the store. So we'll continue to learn and grow. One of our core values is learn, grow, repeat. We're very early days overall in our expansion into suburban areas. So we have our pick of the litter, so to speak, as we think about expanding within Target and even within our stand-alone stores as well. Operator: Our next question today comes from the line of Anthony Chukumba from Loop Capital. Anthony Chukumba: I guess my question is, what are you seeing in terms of optometrist retention and also compensation? How is that in line with [ doctors ] and I guess, recruitment as well. So retention, recruitment, and compensation, how is that tracking in line with your expectations? Neil Blumenthal: Thanks, Anthony. While it's generally more challenging to hire eye doctors than folks with different backgrounds. across the board, I think you're probably hearing this from a lot of other companies as well. It's generally an employer's market right now. One of the nice things is that over the last few years, as we've expanded into primary eye care and have been building eye exam suites in all of our new stores and hiring more and more optometrists, our reputation as a great employer for doctors has only grown. And we hear from our doctors that they love working at Warby Parker because of the culture, because of the technology. One of the -- just as we've developed a lot of our own retail technology, like our own point of sale that we call a Point of Everything, that really empowers our retail advisers. We similarly build software for our optometrists so that way they can focus on clinical care and focus on the patient rather than be bogged down with lots of administrative tasks. So we find that draws a lot of optometrists to come to work at Warby Parker. So we would say at this moment, it's -- while it's never easy, it's never been easier for us to hire and retain great doctors. Dave and I just returned from Denver, where we had our One Vision Summit. Once a year, we bring all of our store leaders together and all of our optometrists, where we focus on the strategy for the next year. We provide learning opportunities, including continuing education for our optometrists. We share best practices. And it is just both a joyful and a productive time, and we just got so much incredible feedback from our doctors about what we're doing as a company and how we continue to invest in them. And even having an event like this that brings together all of our doctors annually, a lot of our competitors, we know have canceled events like this, but we find that it's important. And our doctors also tend to be pretty tech-forward. So they're very excited about some of the advancements that we're making in AI, whether that's from a systems perspective or from a product perspective, which with the eventual launch of AI glasses coming. Operator: Our next question today comes from the line of Paul Lejuez from Citi. Brandon Cheatham: Sorry, I was on mute. This is Brandon Cheatham on for Paul. Hello, can you all hear me? Operator: Please go ahead. Brandon Cheatham: This is Brandon Cheatham on for Paul. Sorry about that. I was just wondering how you all are thinking about your active customer growth and sales per customer in fourth quarter. Guidance would seem to imply that at least one of those metrics decelerates. I'm just curious with some of the comments you made on consumers gravitating to your lower-priced frames. If you saw sales per customer roll over in September-October, or if there's maybe a little more pressure on the active customer side? How should we think about that for 4Q? David Gilboa: The primary shift that we saw was in basket size amongst the younger demographic that we serve and single-vision glasses and contact lenses. And just given the uncertainty around the economic environment and what we're hearing from some other brands and retailers, we thought it was prudent just to take a more conservative view into the fourth quarter. We are still seeing strong year-over-year growth and healthy growth in terms of active customers and average revenue per customer, in particular, relative to the rest of the category where we continue to take share. But we just thought it would be prudent to take a more conservative view. Brandon Cheatham: And I wanted to follow up with future store growth plans. I know you're leaning in a little bit more to existing markets where you only have 1 or 2 stores. Is that something that we can expect from you all going forward? And do you see a different customer response in markets where you already have a couple of stores and then are able to densify that marketplace? Neil Blumenthal: We tend to be in most major markets. So we are in a period primarily of densification. We generally don't see much difference in customer behavior. But when we add a second or a third store to a market, it just gives us more flexibility from a team perspective, whether that's scheduling or building a cohort of tenured team members that we can promote from within. So the majority of our store managers, whom we call store leaders, are promoted from within, which is great because they understand our systems, they understand our commitment to exceptional customer experiences. Typically, they've received a bunch of training around optics and opticianry and some of the more technical aspects of selling glasses and delivering eye care and understand the importance of that relationship with our doctors. So that's the real advantage to us having multiple stores in a given market. Operator: The next question today comes from the line of Janine Stichter from BTIG. Janine Hoffman Stichter: Want to ask about the at-home sunset impact. Just curious if you've seen the impact to e-commerce be in line with your expectations. And has there been any noticeable benefit to the stores business since you've sunset that. And then maybe on Scout, just how meaningful is that? Maybe you can help us square up how big it is in terms of sales? And any impact to margins as we see the mix of contact lenses go more towards third-party branded? David Gilboa: So we are constantly evaluating the products and services that we're offering our customers and making sure that we're delivering exceptional value and exceptional experiences. And as part of that evaluation, we decided to sunset both the Home-Try On program and Scout, and we've done so in a thoughtful way over an extended period of time where both the parts of those business have intentionally scaled down over time. And if you look at starting with Home-Try On, we've invested in our in-store experiences and also our AI-driven features online like adviser where we are seeing strong benefit and are able to serve those customers that otherwise would have used a Home-Try On in different and better ways and are highlighting the stores nearby more prominently for those customers. We found that the vast majority of people that were ordering Home-Try Ons lived within 30 minutes of a store. And now we can be more directive around where to drive them. We're also seeing strong year-over-year growth in direct e-comm glasses purchases. So people ordering glasses without doing a Home-Try On. And that growth has been partially offset by a declining Home-Try On business. But the decision to sunset this program will enable us to get back to higher e-comm growth rates faster over time. We also have to send one less message for customers and can more effectively reallocate those resources to driving customers to the newer parts of our business that are driving higher incremental returns. And with Scout, it's been a small part of our overall contacts business. It was a really innovative products that we introduced that offered really great value to customers. But we found that in terms of both customer, patient, and doctor preferences that there are third-party brands that people are happy with. And we've found benefits in offering a broad assortment of third-party brands, and don't expect the retirement of Scout to have a material impact on our P&L. I think the nice part about retiring both of these offerings is having less inventory and enabling us to be more nimble going forward. Operator: Our final question today comes from the line of Matt Koranda from ROTH Capital. Matt Koranda: Just wanted to maybe understand a little bit more about the pricing philosophy here. I guess a lot of competitors have been taking steady price increases each year in the category in some form or another. And I guess a lot of the category growth is probably coming from price. But it seems like you guys have been a little bit more selective in the ways that you're taking price. The price gaps probably have widened over the last few years. I guess why not take more price intentionally to close that gap? Neil Blumenthal: Thanks for your question, Matt. We have seen competitors take price. And when we look at a lot of the growth in the category, it tends to be from price. We view that as less healthy and less sustainable growth, and we're committed to sustainable growth. That's been our philosophy since we launched the company in 2010. And we believe that if we make customers happy, they'll stay with us for years and decades. And we've seen that in our repeat purchase behavior, in our retention now over many years where our cohorts have performed remarkably consistent. And we think that's in large part due to the great customer experience and the incredible value that they get from us. So it's something that were highly considered whenever we think about a price increase. One of the things that we're proud of in this quarter, even though we're very disappointed that we missed our bottom end of top line guidance, is that we had healthy customer growth. So you can anticipate that we will continue to grow in a healthy manner next quarter and beyond because we'll continue to treat customers well. Our opening price point of $95 with anti-reflective, anti-scratch, single-vision prescription lenses has remained consistent since 2010. Of course, since then, we've also introduced frames at higher price points. We've introduced different lens options, whether it's different tints or high index or other ultrathin options. We've gone beyond our signature progressive and now offer precision progressives. So what you'll see from us in the short and midterm is continue to have more options for our customers to choose from, but we'll ensure that it's always exceptional value, and our hope and intent is that, that value gap continues to increase as our competitors raise prices. Matt Koranda: Maybe just for my follow-up. Curious to hear a little bit more about AI smart glasses, if you can say anything, just any updated thinking around how new products might be rolled out next year and just any thoughts on the AOV and benefits there? Neil Blumenthal: We believe we're best positioned to win here because of our brand. We pioneered lifestyle brand made on the Internet and technology has always been at the heart of Warby Parker. Our stores and our digital experience is second to none in the category. So when introducing a new complex product like AI glasses, having very knowledgeable, tenured, and tech-forward teams that are able to sell this and explain this product to the customer and serve the customer is going to put us in a position to win here. We're very excited about our partners who we engage with on a daily basis at Google and Samsung, 2 of the most world-class technology innovators on the planet. And we'll have more to share in the coming months. But we're excited about this new product category for us. Operator: Thank you. This concludes today's call. Thank you all for your participation. You may now disconnect your lines.
Operator: Hello, everyone, and welcome to today's TBC Third Quarter and 9 Months 2025 IFRS Results Conference Call. My name is Sam, and I'll be the call moderator today. [Operator Instructions] I'd now like to hand you over to today's host, Andrew Keeley, Director of Investor Relations, to begin. So Andrew, please go ahead. Andrew Keeley: Thank you very much, Sam. And welcome, everybody, to our third quarter results call. I'm joined on today's call by Vakhtang Butskhrikidze, our CEO; by Giorgi Megrelishvili, our CFO; and by Oliver Hughes, our Head of International. As usual, we'll have a presentation, and then we'll run through and have a Q&A session afterwards. And with that, I'll hand over to Vakhtang. Thank you. Vakhtang Butskhrikidze: Thank you, Andrew. Hello, everyone, and thank you for joining us today. I am pleased to present another highly profitable quarter with record quarterly earnings. As you can see, our group's net profit in the third quarter reached GEL 368 million, up by 6% year-on-year, while return on equity was 24.4%. Our revenue growth was very respectable, 7% year-on-year growth. In Georgia, we had a strong and stable quarter with 24% plus return on equity, 9% growth in our loan book and net interest margin reaching 6%. Over the same period, Uzbekistan’s, net profit was GEL 41 million, up by 30% year-on-year with return of equity exceeding 23%, while the loan book has almost doubled year-on-year to close to $1 billion. Our digital ecosystem continued to expand its reach with registered users totaling almost reached 22 million, up by 28% year-on-year. As a result of our strong operating performance and a solid capital base, the Board has declared a quarterly dividend of GEL 1.75 per share, bringing the total 9 months of 2025 dividend to GEL 5. Now turning to Georgia. Georgia's economy continued to perform strongly. Real GDP growth stood at 6.5% in the third quarter, bringing 9 months growth to 7.7%, while our macro team has revised its 2025 GDP growth forecast upwards to 7.3%. The inflation rate reached 4.8% in September, surpassing the National Bank of Georgia's 3% target, but we expect this to ease slightly over the next few months. Next slide highlights the highly consistent performance of our Georgian Financial Services business as we continue to deliver close to mid-20s return on equity. The reason for this consistency, as you can see that we continue to be a leading player across most of the key banking segments in Georgia. In the third quarter, our gross loans were up by 9% year-on-year. And I'd like to highlight particularly strong performance in fast consumer lending, a key focus for us where our loan book portfolio grew by 42%, and we have gained 3 percentage points of market share over the past year. Meanwhile, our Georgian customer deposit increased by 11% over the same period. We continue to maintain a strong position in both lending and deposits while constantly improving how we serve our retail and business clients. Next slide illustrates the growing digital engagement among our retail customers in Georgia. By the end of September, our digital monthly users reached 1.2 million, accounting for 2/3 of our active customers. And our digital MAU continues to increase by around 50,000 users per quarter. What's also important is that our digital users are highly engaged with us on a daily basis as it reflected in a very impressive 46% DAU to MAU ratio. The increasing take-up of digital banking by our customers is also reflected in the very high levels of digital loans and deposit issuance. Now let's turn to our Uzbekistan business. Starting with the economy, much like Georgia, the Uzbek economy also remains highly dynamic with real GDP growth of 8.2% in the third quarter, bringing 9 months 2025 growth to 7.6%. What is very encouraging is that inflation is also easing dropping to 8% in September and even lower in seasonality adjusted terms, supported by tight monetary policy, and we have also seen local currency strengthening this year. Next slide provides an overview of the progress that we have made over the past 2 years across all major metrics. We have almost 22 million unique registered users, out of which almost 6 million are monthly active users. Our loan book continues to almost double year-on-year and now tops $970 million, while our deposits increased by 71%, reaching over $540 million. Our operating income reached a record $70 million in this quarter and increased by 69% year-over-year. In the third quarter, net profit of our Uzbekistan business reached $15 million, up by 30% year-on-yea. Now let's turn to some of our recent business updates in Uzbekistan. We continue to expand our digital banking in the third quarter. We -- in the third quarter, we announced our planned acquisition of majority stake in OLX, the country's largest online classified platform. This will unlock powerful synergies with our financial services platform and help increase our share of customer retention. We also saw a great progress in the uptake of Salom card. By the end of September, we issued 700,000 cards, of which 500,000 have been funded as customers are increasingly choosing TBC for their daily banking needs. In addition, we have been deepening customer engagement in Payme with Payme Plus subscriptions reaching 300,000 MAU. We keep scaling the use of AI throughout our business. As a result, we have reached 90% automation in early-stage delinquency cos, and we have conducted over 100,000 sales per month with our AI voice chatbots. Evidence of the popularity of our ecosystem can be seen in it being the top of mind brand in Tashkent and #3 in Uzbekistan as a whole, a great achievement in just a few years of operating. Next slide shows our increasing market share and contribution to the group. By the end of the third quarter, market share of our retail loans and deposits stood at 4.9% and 4.2%, respectively. In the third quarter, Uzbekistan contributed 11% of the group's net profit, while the contribution in operating income was 21% . Next slide provides an update on the targets we set ourselves for Uzbekistan business. I think it is worth stepping back for a moment and considering what we have achieved in Uzbekistan over the past 6 years. During this time, we have built one of the fastest-growing digital banking ecosystems globally. Our registered users have increased tenfold to 22 million, and we have built a $1 billion loan portfolio. Our digital bank broke even in the just 2 years and is already generating 20% return of equity despite being a early stage business. This year, we have scaled up launch new products and announced highly value accretive M&A with BILLZ and OLX, and we are a top 10 player in retail banking and even the top of mind bank in Tashkent. But of course, there has been some challenges this year. As you know, we had issues around fraud and asset quality in the first half, while in the second half, we had pivoted our business from micro loans to SME lending more quickly than we had anticipated, in line with the changing regulatory agenda. As a result, we expect to below our 2025 net profit guidance. I firmly believe that we have a flexible and resilient business model and an excellent team that will enable us to adapt quickly to the evolving environment, and we remain highly positive on the long-term growth opportunities in the country. Finally, I'd like to provide an update regarding group's targets. First of all, I'd like to stress that the group's overall performance remains strong and resilient. Our return of equity has consistently been running ahead of the challenging 23% target. And since the start of 2023, we have almost doubled our digital MAU to close to 7 million as our customers choose TBC. Over the past 3 years, we have increased gross profit annually by 10% despite investing heavily in building out Uzbekistan. However, given that we are running below our profit targets in Uzbekistan, group's net profit was slightly below our GEL 1.5 billion target. As a group, we are well positioned for the future. We combine consistently and proven leadership in Georgia with a dynamic digital ecosystem in Uzbekistan that is well placed to capture the huge opportunity available and remain highly positive on the long-term growth opportunities in both markets. With that, I pass over to Giorgi. Giorgi Megrelishvili: Thanks, Vakhtang, and thanks all for joining our quarterly call. Now I will go into more details for our financial performance, and we'll start with Slide 18. So it has been a strong quarter with a record profit, as Vakhtang mentioned, with GEL 368 million. That is up 6% both quarter-on-quarter and year-on-year basis. Our 9-month profit surpassed GEL 1 billion threshold, and that's actually again 6% up compared to the same period last year. So that translated into a very nice and strong 24.4% ROE. So if you go to next slide, Slide 19, I would like to discuss the drivers of this performance. As you can see, our top line growth has been very strong, 17% year-on-year. That was mainly driven by our net interest income growth, [ 24% ], really solid growth. Our noninterest income also grew by 6% on quarter-on-quarter and 3% year-on-year. This, I would say, slowdown in growth driven mainly by 2 factors, fee and commission income in Georgia because of the increased card network fees. And also, we do invest a lot into our TBC card, cash backs, loyalty that becoming a go card, and we do expect this trend to continue. The second reason is that Lari has been very stable this year, a good sign. However, the margins compressed significantly compared to last year. But despite that, we still delivered and we were flat as last year for the 9 months. So Andrew, if you go to next slide, Slide 20. So and if we look now our NIM dynamics, we are very pleased to see that we retained 7% level and we expect to stay at this level for a while. And actually, another nice development is that in Georgia, we are back to 6% handle from 5.9% last quarter. And also, we do expect to retain around this level in Georgia, maybe high 5s, low 6%, but more or less the level we are in Q3. So let's move to Slide 21. Our cost dynamics. Our OpEx was up by 18%, probably the trend we have seen nothing unexpected because we do continue to invest into our businesses in both countries, particularly into Uzbekistan. However, our cost/income ratio remains broadly very stable. So it was 37.7% more or less the same as in Q2 last year and also 9 months trend is kind of more or less the same and in line. Now if we go to Slide 22, turning there, our credit quality. Cost of risk remains the same for the group and for Georgia as well. For group, it was 1.6%, for Georgia, 80 basis points. So that's the level we have seen for the last few quarters, a very good level. We are very comfortable with this level with our credit quality. Uzbekistan cost of risk ticked down slightly, 20 basis points to 9.7%. However, we still do see the less impact of our thin file consumer segment and long tail post merchant. So we do expect this trend to remain for a quarter or 2 going forward. Now going to Slide 23. Our balance sheet growth, it was very healthy, 13% for the group, both for customer funding and loans. However, I would also like to comment on Georgian growth that was a bit subdued this quarter. That was driven by one-off, a large repayment in our corporate business. In Q4, we do expect to go back to our normal growth mode, and we do expect this year to be double-digit growth. Now turning to Slide 24. I mean our capital positions, they remain very strong in both countries. We are well above our regulatory limits in both countries. And exactly the strong capital levels, if you go to Slide 25, turn to that, will allow us to continue returning capital to our shareholders. We repaid GEL 1.75 in Q3. That brings our overall distribution to GEL 5 this year. and that combined with GEL 75 million buybacks that's still ongoing, we are more than halfway through. So on this note, I would like to thank you, and now we can deep dive more into our TBC Uzbekistan business. Oliver, please go ahead. Oliver Hughes: Thanks, Giorgi. Yes. So I'm going to give you a bit more color on what's happening in Uzbekistan and what's been happening over the last 3 quarters. As you know, it's been a mixed year for TBC Uzbekistan in 2025 with lots of positive developments happening operationally, but a fair number of challenges as well. This sometimes happens in business and the important thing is how the team reacts to these situations when they arise. I'll start with the positives. We've scaled our business considerably and launched new products. Our loan book has grown by over 90% year-on-year and isn't far off $1 billion. We are now a top 10 retail bank in Uzbekistan in both lending and deposits. We've made great progress in building one of the best consumer daily banking offerings in the market. We already have over 700,000 issued and 0.5 million funded Salom cards, which is our flagman debit card. We've launched business lending, which already accounts for above 10% of our loan book and digital insurance with over 300,000 policies issued. We've announced 2 great M&A deals, as Vakhtang mentioned, a partnership with BILLZ, which gives us access to a huge network of retailers and the acquisition of a majority stake in OLX, the country's largest online classifieds, which will unlock powerful synergies with our own financial services platform. These deals help us deepen our relationships with our B2B and B2C customers. We've made great progress in building an AI-powered bank with our proprietary AI stack and our own AI voice assistant coming soon. We more than doubled our gross revenue year-on-year in 9 months to $350 million. And despite investing heavily in all aspects of the business, we've also increased earnings by almost 30% year-on-year with close to 20% ROE, which isn't bad for a digital bank that has just celebrated its fifth birthday. We've also had several challenges, which I will describe in brief here. In quarter 1, we were hit by an external market-wide fraud. The P&L impact was $9 million. We owned it, dealt with it in quarter 1 by provisioning the loss and moved on. In quarter 2, our cost of risk increased mainly from tests that we've been conducting to find new segments and channels in which to grow our business going forward. There were also some scaling-related issues in collections. We made adjustments to our operations, took a more conservative approach to underwriting, and we believe that our credit risks have now more or less topped out. The loans that we booked were overwhelmingly NPV positive, but we understand that optics are also important. Also in quarter 2, the regulator tightened the KYC requirements for payments platforms, meaning that in effect, we had to reregister all of our 3.9 million Payme MAU. Not only did this cause a dip in MAU, which is now recovering, it also led to a slowdown in payments volumes and fee and commissions income. In quarter 3, in line with the regulator's agenda of pivoting the national loan book towards SME, we had to slow down our disbursement of micro loans or unsecured personal loans. This, in turn, has had an impact on cost of risk because the front book is not growing as planned, which means that the risk in the back book is not being diluted as quickly as anticipated. This also hit our revenue and in turn, our bottom line. As we have been highlighting, retail lending and particularly unsecured consumer lending is at a very early stage of development in Uzbekistan. Total retail loans to GDP are just 12%, while unsecured consumer loans to GDP are just 4%, albeit this has been the fastest-growing segment over the last past couple of years. Back at the end of last year, we were working under the assumption that consumer-facing products, including unsecured consumer loans of different types, will be a key driver of our portfolio growth for the next few years. However, since the beginning of this year, there has been a major change in the regulatory agenda in favor of promoting SME lending whilst becoming increasingly negative towards consumer loans, in particular, micro loans, which are perceived as inflationary and something that the population is not yet ready to adopt widely. After the shift in the Central Bank's agenda, a fairly rapid but nonetheless staged market rebalancing from consumer lending to SME lending was implemented through the announcement of market-wide portfolio caps to be introduced by the 1st of January 2029, as we discussed on our first quarter call. Over the past couple of months, the regulators requested that we accelerate our disbursement of business loans. In addition, the CBU has recently proposed new risk weights on unsecured consumer loans. These risk weights are based on the portfolio share of unsecured consumer loans, micro loans, credit cards and overdrafts and will be introduced from the 1st of July 2026. According to the CBU letter, which could still be subject to change. If a bank's share of micro loans or credit cards is higher than 25%, the risk weights applied to that part of the unsecured consumer loan book will vary from 150% to 250% depending on the share of these unsecured loans in the total loan book. As things stand, we expect to have 50% to 75% share of micro loans in the loan portfolio. It now stands at 79%, which would imply 200% risk weighting for the micro loan book. If introduced in the current form, this would, a, have a negative impact on our capital ratios and b, worsen the economics of micro loans. So this is the regulatory environment in which we are working. As you know, in response to the CBU's introduction of portfolio caps and strong desire for the market to recalibrate, we accelerated the launch of SME lending in April. This now accounts for around 15% of our total loan book, and we are ramping up this business. However, it is now clear that we will have to further pivot away from unsecured consumer lending to business lending and secured lending. As Vakhtang covered earlier on this call, this all means that while we are on track to hit our 5 million MAU guidance and 80% loan CAGR targets, we're going to be below the highly ambitious net profit guidance we set ourselves back in 2023, for which I apologize. As you know, we will be holding a Strategy Day in late February, on which we will update the market on our longer-term outlook, but it feels appropriate to outline some of our very initial thinking on 2026. First of all, we still see massive long-term potential in Uzbekistan as we continue to build out the largest digital banking ecosystem in Central Asia. As previously communicated, the SME banking opportunity is huge in Uzbekistan. This will be a key business priority in 2026 and beyond, providing us with new sources of growth as well as aligning us with the priorities of the government and the regulator. We will look to move into new business lines in secured lending in 2026. We have the expertise and platforms to do this, and it provides another large opportunity in the country. We will continue to grow our loan book in segments of unsecured lending, such as credit cards and BNPL or installment loans. We have already issued 85,000 Osmon credit cards, accounting for 5% of our loan book. In 2026 and beyond, we hope that Salom card will become the go-to product for affluent and mass affluent customers to conduct their daily banking. We will further integrate our 2-sided ecosystem, connecting our 22 million registered users on the one side with our exposure to tens of thousands of enterprises on the other. In 2026, we will integrate our CRM and loyalty platforms and start leveraging the opportunities created by our acquisitions of BILLZ and OLX. We have a strong, largely proprietary tech platform, including our speech tech platform on the base of which we're launching a range of interesting AI-driven services over the coming months, including first and foremost, our own in-app voice assistant called Lola. Last but not least, we have an amazing experienced and ideas-driven team that has been through many different situations in many different markets. We know how to build good product and [ CX ], which is exactly what we will continue to do. So thank you. And now over to Q&A. Andrew Keeley: Thanks very much all of you for the presentation. Okay. So we can start with questions. I think first up is Piers Brown from Investec. Piers Brown: Can you hear me okay? Andrew Keeley: Yes, we can. Piers Brown: Yes. So I have one on Uzbekistan and one on Georgia. So this is probably one for Oliver. Thanks for all of the background information on the risk rating changes, Oliver. That was very helpful. I'm just thinking in terms of the -- I mean, you mentioned this increase up to, I think you said 200% on the micro loans. How impactful is that for your capital ratio in Uzbekistan? And I guess the question is, do you have sufficient capital in place currently to absorb that level of risk weighting increase? And then allied to that, how likely is it these caps may be amended or the risk rating proposals may be amended -- and are you still covering your cost of capital at that level of risk rating? So those are my questions on Uzbekistan. I don't know should I ask the question on Georgia? Would you like to address that first and then. Oliver Hughes: Let me answer the Uzbek piece first, yes. So thanks for the question Piers. So the first question was on the impact on the capital ratio of the proposed risk weights, which we have been notified will come into effect from the 1st of July next year. And the answer is we have capital to cover it. So the way this works is that it's based on the share in the loan portfolio, in the loan book. So our share of micro loans, which is obviously -- so these are unsecured personal loans or cash loans is going down because our share of other products is going up, first and foremost, SME, which is growing at a clip. And we will be accelerating that. We're gathering data, we're getting better at it. We're learning how to do the job, which will bring our share of micro loans as they call in Uzbekistan, down below 75%. And depending on how it goes, maybe below 50%, maybe not by the 1st of July because that's only in 7, 8 months, but certainly not long thereafter. So there will be a reduction in our capital adequacy ratio for a period of time. But as our share of micro loans goes down, then it will reset. So there will be a period of time from the 1st of July, let's say, for a few months, while we're still above 50%. But then micro loans will go below 50% and our capital adequacy ratio will go up organically as the risk weights run off. So that's how you should think about this. We don't need to inject additional capital. So that is on the risk weights. And just maybe another piece of relevant information is that 1.5 years or so ago, the risk weights were 200%. They were reduced down to the current level, which is around 100% based on PTI. But now the Central Bank with its revised agenda in terms of driving SME and reducing consumer lending or slowing the pace of consumer lending growth across the system has now put them basically back up to where they were. But if we have a very high share, i.e. 75% or more than it's up to 250%. So that's the [ live of land ]. Could these be amended further? I think it's unlikely because these have been communicated, but you can see that the Central Bank in Uzbekistan is -- has a very firm stance on where it wants to see consumer lending and what it wants to see happening with SME lending. So I can't rule it out completely, but I think it's unlikely. Andrew Keeley: Piers, do you want to ask on Georgia? Piers Brown: No thanks Oliver, that's very helpful. Yes. So on Georgia, I guess this is for Giorgi. I think you mentioned a NIM sort of guidance level or realistic level of somewhere in the 5 highs or maybe 6%. I'd just be interested in the components of that because I guess if I look at the Georgia business, the portfolio growth is coming mostly now in the very strong growth in the fast consumer loans. So I guess structurally, that's shifting the margin higher. But just if you could give some insights on to the components of NIM over the next year or so, that would be very helpful. Giorgi Megrelishvili: Yes. Thanks Piers. Good question. So there are different dynamics from currency [indiscernible] from Lari and FX. If you consider Lari over time, we are still in quantity easing cycle, we do expect the [ FX ]rate to come down. Maybe it's paused a bit. So that probably will put additional pressure. However, it's more than compensated, as you rightly mentioned, like the change of our portfolio structure. That's number one. Also change of our FX composition. Now our Lari is going up. We have more focus on Lari loans that also have higher yields. On FX side, we do also see the benchmark rates coming down. That's maybe marginally negative. However, we also -- like on the FX, we have our wholesale funding more on a floating basis. Therefore, we are more hedged on that side. So overall, that's what I saying that taking into consideration all these components, growth and our plus, we do expect to remain high, as I said, high 5s, like around 6% level. Andrew Keeley: Okay. Next up, we have Stuart from Peel Hunt. Stuart Duncan: Hopefully, you can hear me. I've got 2 questions as well, actually almost similar to Piers. The first one on Georgia. Giorgi, you sort of mentioned about some of the pressures on the fee and commission income. I'd just be interested to know whether these trends continue and persist or whether at some point you start to see some sort of reversal and you start to see growth in that line again? And then the second question is on Uzbekistan for Oliver. And you've obviously spent quite a bit of time talking about some of the regulatory interventions, a fairly detailed regulatory agenda. I'd just be interested if there's any sort of other potential implications you see over the next 12 months or so from a regulator, which feels like it's doing quite a detailed work around the sector. Giorgi Megrelishvili: Probably fee and commission income is the outcome of our strategy, and I hand back to Vakhtang to kind of elaborate more wider. But generally, what I can say, our focus on top line growth given, we do expect our top line like gross NII and net fee and commission income combined to grow at healthy levels, maybe mid-teens, but there will be a composition change for which I'll pass to Vakhtang to elaborate more. Vakhtang Butskhrikidze: Yes. As you understand, main drivers of our fee and commission income, Georgia, is the debit cards and after that coming other type of income. So on that side, you know that at the end of the last year, we began to issue new type of the TBC card, and we are doing very well. So until today, we already issued more than 800,000 TBC cards and this is a very good tool for us to attract and to bring new customers on the one hand, new customers to TBC or passive customers who did not use historically our debit cards. So on that side, we are looking that it's a good tool for us to bring them and this TBC card is mainly has a free of charge on some of the operations. But indirectly, it's very valuable for us because a lot of consumer loans or the credit cards -- by the way, we are doing very well for the mortgages, other type of the loans. It's a very tool just to bring it up to us to offer different kind of the products. And to summarize my answer, so we will continue to issue more and more TBC cards, which is very important to bring new customers. And we want to build on that to sell more different kind of the products, especially where we have a high profitability such as credit cards or consumer loans to these new customers. And to summarize, so probably we could not see growth in fee and commission income during 2026, but indirectly, it will influence our high growth in most profitable segments such as credit cards, consumer lands -- loans. And indirectly, it means that we will increase materially our net interest income in 2026. Oliver Hughes: And taking your question on Uzbekistan, could there be more regulatory changes, Stuart? So the answer is obviously, yes. So I would preface my answer by saying that the regulatory framework in Uzbekistan is pretty well formed as we've been saying a lot over the years. So on the consumer lending side, they have risk weights, PTI regulation, rate caps, ban on FX lending to consumer. So I think it's unlikely that major new changes to the regulatory framework are going to be introduced. But it's clear that the regulator has particular objectives that it's following that it's trying to achieve in the near to medium term. So it's trying to change the shape of the national loan book and push SME lending, get banks to focus their efforts on pushing SME lending as opposed to unsecured consumer lending. And part of this is inflation targets. Part of it is making sure that the national loan book is balanced in the way that the Central Bank wants to see. So if they see the consumer lending growth and SME lending growth are not in the proportions that they want, then it's possible they will do more. But right now, we can't tell you what else they might do given that there's already quite a lot being done. So we'll keep you informed, obviously. Andrew Keeley: So we have next up from Simon at Citi. Simon Nellis: Maybe just one more for Oliver. I mean the risk cost has remained elevated. How much of this is kind of testing your kind of micro loan client segments? And how much of it is testing the SME? And I guess going forward, if you have to accelerate faster in SME, is it fair to assume that continued testing is going to lead to continued high risk costs for quite some time? Oliver Hughes: So our loan book is predominantly unsecured consumer loans. It's mainly what they call micro loans, which is unsecured personal loans. And there that's as a result of the tests predominantly, as we said earlier. Obviously, there's the fraud hit that we took in quarter 1, but it's mainly tests, which matured a little bit of operational stuff in quarter 2 and quarter 3. Our SME loan book is growing from 0 fairly quickly. And there is definitely elevated cost of risk, but that's not what you see coming through the numbers there because it has very little effect because it's a small share of the loan book. As we change the proportions going forward, obviously, we have to do a lot more testing to understand what lies where in micro business, small business and let's say, the larger end of SMEs who will be tackling predominantly through bills. We will obviously try and manage risk in a way that doesn't affect the numbers. We think that we'll remain -- in the corridor that we communicated earlier, 7% to 10%. Certainly, the consumer lending book has topped out, and we think that will start coming down as we go into the beginning of next year. But in SME, depending on the pace of growth, obviously, you'll see some risk coming through that. So I can't guide you in any numerical way at the moment, but we will have to keep on top of that. Andrew Keeley: Thank you, Simon. There's a couple of questions that come through on the chat. One is about coming back to Uzbekistan, I think you've more or less answered on the kind of cost of risk about kind of normalized cost of risk, but also should we expect revisions to longer-term targets after the challenges that the bank has faced in Uzbekistan? And then a question on Georgia was just why was Q-on-Q growth -- loan growth in Georgia so muted. We've kind of covered that already, but you may want to add some more. Giorgi Megrelishvili: Maybe I'll answer the third question about the growth. So in Georgian operation in our CIB business in corporate business, we have 2 big one-offs and that influenced our growth. Others, if we extract the one-offs from the corporate business, we are following the growth of the total bank, especially for us, very important that we are winning market share in the consumer loans and credit. Oliver Hughes: And on the Uzbekistan question about longer-term outlook. So we reiterate our confidence in the potential in Uzbekistan and our ability to capture that potential medium to long term. But as you can see, right now, we've got a lot of moving parts. And so it's very difficult to give any meaningful guidance until things settle down into some kind of more predictable pattern, which we hope will happen in the next few months. So by the time we get to February next year on the Strategy Day, we hope the dust will have settled, and we'll be able to give some more meaningful longer-term projections. But right now, it's moving around. Andrew Keeley: And Oliver, maybe just another one for you about the micro loans and whether we can classify micro loans sort of maybe to very small businesses as SME kind of loans to help kind of grow the share of the SME loan book that way? Oliver Hughes: Sure. And it's a great question, absolutely the right question. So we have so far 2 lines, let's call them, business lines in SME. So there's, if you like, a true origination of SMEs who are new to bank. And that's a business we're learning. It's at the moment, it's working capital loans. We want to try and test secured loans to SMEs, and we'll start doing other stuff as well as we go through the year next year. And then there's what you can maybe term as kind of business consumer or consumer business loans, which is your question, where generally in an unsecured mass market consumer loan book, you'll have 25% to 30% of those customers wearing a consumer hat but actually borrowing for business purposes. And that will be a big driver of our SME lending growth next year. So basically, we're hiving off some of the cash loan or the ICL business and reclassifying it as SME because these are either individual entrepreneurs or self-employed customers who indicate that the loan they're taking for business purposes, which means that they will be classified as SME from Central Bank reporting purposes. Andrew Keeley: Thanks, Oliver. Simon has his hand raised. I don't know if that was -- Simon, do you have another question? Simon Nellis: Yes, I do actually. Just I was hoping you could elaborate a bit on the insurance business in Uzbekistan. You've booked some revenue there this quarter. Is that expected to grow nicely going forward? I assume it is. And then maybe just on the Georgian business, I think the FX revenues went up quite nicely in the quarter. If you could comment on that and how sustainable that is? Oliver Hughes: Would you like to take Georgia first? Giorgi Megrelishvili: Okay. I was [indiscernible] but I can take. So business, as I mentioned, like generally, margins this year went down significantly. The Lari has been very stable. It's just seasonality. So if you look how the flows are. So it has been higher flows during Q3, also a bit higher margins. Generally, what we can say is that 9 months is like truly conservative run rate for us on FX because with the subdued margins, we still delivered that level that as I mentioned during my call was flat compared to 9 months last year. Vakhtang Butskhrikidze: But in addition to that, what is Giorgi saying, we have very comfortable level of growth of the transactions in FX. But as Giorgi said, margins went down dramatically compared to 2024. And as you know, we have a very stable exchange rate during this year. So that influenced the FX. Otherwise, the transactions in the number and the volumes of transactions we are doing very well. Oliver Hughes: And very briefly on insurance, TVC, [indiscernible], which is the word for insurance. It's new. So we launched it basically in March, April this year. It's captive insurance. So basically, these are products which we are selling to our existing customer base, credit linked, but we have ideas, obviously, to add new insurance products and sell them to our existing customer base, which is obviously very large in Uzbekistan and growing. And then at some point, we will get around to selling insurance products into the market, which are not captive insurance products. But at the moment, that's where we're starting. Simon Nellis: So that's credit protection primarily. Yes. Great. And who's your partner there? Oliver Hughes: So it's our in group. Simon Nellis: In-house. Okay. Andrew Keeley: Thanks very much, Simon. Sam, are there any calls on the phone lines? Operator: There are not, no. Andrew Keeley: No. Okay. We don't have any other questions at this time. Yes, nothing coming through. So I'd just say thank you all very much for joining this call. As always, we are around and available to answer any follow-up questions that you have. And I'm sure we'll be meeting and catching up over the coming months, and we'll be publishing our full year numbers in February next year. So thank you very much, and goodbye. Giorgi Megrelishvili: Thank you very much. Operator: This concludes today's webinar. Thank you all for joining. You will now be disconnected. Have a great day.
Operator: Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Azimut Group 9 Months 2025 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Giorgio Medda, CEO of Azimut. Please go ahead, sir. Medda Giorgio: Thank you, and good afternoon, everyone, and thank you for joining us today for the Azimut's 9 Months 2025 Results Presentation. I'm Giorgio Medda, CEO of the Group, and I'm very pleased to be here with Alessandro Zambotti, our CEO and Group CFO; and Alex Soppera, Head of Investor Relations. This period marks another important step in our growth journey, reflecting both the strength of our business model and the consistency of our strategies across markets. This year, in 2025, we continue seeing a great execution and delivery in terms of objectives, translating into tangible results and exciting corporate development that we will certainly elaborate in detail later. So moving on to Slide 3, please. So let me start with the key highlights for the period. So the first 9 months of 2025 represent the best on record for Azimut in terms of managed net inflows, reaching EUR 13 billion, together with a strong 17% growth in recurring net profit. These results confirm the strength of our diversified business model and certainly the quality of our recurring revenue base. We also made very significant progress on the TNB transaction, which continues to advance and represent a transformational step for the group. Alessandro will discuss about this in more detail later. But now we certainly -- I can say we operate with greater clarity and visibility over the next regulatory steps related to the TNB project whose authorization is expected by the second quarter of 2026. Building on the strong commercial momentum to date, we are raising our core group net profit guidance for 2025. And today, we are projecting the core group net profit to exceed EUR 500 million in 2025, while we see 2026 net profit, including the expected contribution from the TNB transaction to surpass EUR 1 billion. As a result of the updated time line regarding the TNB authorization, we have decided to anticipate selected key guidelines from our Elevate 2030 strategic plan, in particular relating to our global business. The new strategic plan will outline an even more ambitious growth trajectory, further cementing Azimut's leadership position among global independent players. And -- but certainly, I mean, I will be able to elaborate on that in greater detail later in the presentation. So moving to Slide 4 and turning to the highlights for the first 9 months of the year. Let me mention that total assets have reached EUR 123 billion, marking a new record for the group. Net inflows were equally strong at EUR 15 billion, of which 43% came from our global operations. This demonstrates and shows the continued diversification of our growth and the relevance of our global platform, which once again outperformed other players in the Italian asset management industry. Revenues in the 9 months exceeded EUR 1 billion, supported by a 9% increase in recurring revenues, confirming the quality and resilience of our business mix. EBIT stood at EUR 471 million with recurring EBIT up 12% year-on-year, and group net profit reached EUR 386 million, representing a 17% growth compared to the same period last year. That is essentially driven by the steady expansion of our recurring profit base. And finally, let me stress what is the contribution from our global operations, reaching EUR 60 million, corresponding to EUR 43 million in the same period of 2024. So this is almost 50% growth versus the 9 months last year. This consistent growth across regions confirms the effectiveness of our international strategy and the scalability of our global business model. And let me say as a general comment that these figures put us in a strong position to continue executing our long-term growth agenda while we continue creating value for our shareholders. So looking at the bridge between 9 months 2024 and 9 months 2025, I'm looking actually at Slide #5. Our group net profit reached EUR 386 million compared with EUR 439 million in the same period last year. And the difference here mainly reflects lower performance fees and capital gains below the operating profit line, while recurring profitability continues to grow very strongly. So recurring EBIT increased by 12% after costs, confirming the solid momentum of our core operations, while performance fees were lower by about EUR 19 million, mainly due to insurance-related products. However, I would like to highlight our strong 3Q results and a solid start into Q4. Strategic affiliates in GP stakes have contributed slightly less than last year, with dividends from our GP stake in activities offset by lower net results from Sanctuary Wealth and AZ NGA. Under other items below EBIT, the comparison is significantly affected by nonrecurring items, most notably the capital gain from the sale of our stake in Kennedy Lewis. And as such, it's important that throughout this call and for the broader analysis in general, I would rather focus solely on recurring growth, which posted a 17% growth year-on-year as a result of our continued expansion across the globe. So on Page 6, you will see how our total assets have evolved since the start of the year under the new reporting method. I won't go too much into the detail of this analysis as these are figures that have been already published and commented on press releases. But the thing I would like to mention here that what is remarkable is the fact that growth was essentially coming from organic flows, which have totaled almost EUR 12 billion during the period and represents the best results on record in Azimut's history. And while we don't have all the final numbers as of yet, let me anticipate that October is poised to be another month with very strong inflows across the board. Turning to Page 7. Again, here, I wouldn't go too much into the details of this, which will be also commented by Alessandro more in detail. But let me certainly mention in Slide 7, the breakdown based on our 4 distribution lines. Integrated Solutions is our core line of engagements with clients, including Italy, Brazil, Egypt, Mexico, Taiwan and Turkey. This continues to be a powerhouse and command superior margins that are driven by the vertically integrated business model and market-leading positions that we have in these geographies. We have then the Global Wealth division, which brings together the group's hubs in Monaco, Dubai, Singapore, Switzerland and the United States that is becoming an increasingly important growth driver, serving high net worth and ultra net worth clients worldwide. And then we have the institutional and wholesale effort that is gaining traction and saw a very strong increase in profitability. Let me remind you that this segment brings together our global institutional initiatives across LatAm, Asia and EMEA and certainly Italy. The strategic importance of this business is rising and will continue to do so. It's a source of innovation, distribution diversity and partnerships such as the contribution for Nova. And also, let me mention that strategic affiliates remain in a phase of growth and consolidation, and we still have investments ramping up to expand the respective aggregating platforms of financial advisers in the U.S. and Australia. And very important also to mention that as we keep growing, the group is able to maintain a very healthy recurring net profit margin at 43 basis points. So moving to Slide #8 and zooming in on the performance by region. The results confirm the strength and the diversification of our global platform. Again, here, I won't go into details too much as numbers and the notes speak for themselves. But let me tell you that something that is very, very important to highlight here, Azimut has evolved from a successful Italian player into a global platform with very strong local routes and international breadth that spans 20 countries. Every region is contributing to growth, guided by unified culture, consistent governance and the shared vision for the long-term value creation. We're going to talk about Elevate 2030 later, but these results set a very solid foundation for the ambitious growth targets that we are setting for ourselves in the years to come. So let me now hand over to Alessandro for a more detailed commentary on the figures. Alessandro Zambotti: Thank you, Giorgio, and good afternoon to everybody. So we can now move to Slide 9. Total revenue in the first 9 months 2025 go up to EUR 1 billion, so marking an overall increase of 6%, EUR 61 million year-on-year. This is the result of an increase in recurring fees, plus EUR 58 million, thanks to the strong growth recorded in terms of total assets. And in particular, EUR 31 million came from the Italian perimeter with a strong contribution from all business lines from mutual funds, alternative funds and pension funds and also to Nova. Some numbers, at the level of the alternative funds, we have a positive contribution of EUR 12.5 million to the growth. Mutual funds around EUR 7 million and discretionary advisory services and pension funds contributed for EUR 9 million. With regards to our global operation, we have a contribution of about EUR 27 million, thanks in this case as well to the asset growth, mainly driven by U.S., Brazil, Singapore and Monaco. We should also factor in the change in perimeter due to the consolidation of Kennedy Capital and HighPost, which occurred for EUR 17 million. So moving to the performance fees were EUR 4 million lower year-on-year, mainly reflecting softer results in the first half of the year, but partially offset by strong third quarter performance, thanks to Brazil, Turkey and Monaco. Then at the level of the insurance revenue, we have a decrease by EUR 80 million compared to the first 9 months of last year. But however, in this case as well, despite market volatility, we have a positive contribution from performance fees of about EUR 27 million in these 9 months and in particular, strong contribution in the third quarter. We also grew our recurring revenue by about EUR 8 million compared to last year. And these 2 components largely compensated for the lower performance contribution resulting in an overall variance of EUR 16 million compared with last year. And to conclude this first part of the revenues at the level of the other revenue were up to about EUR 15 million compared to last year. And I mean, in general, we continue to see good consistency across all the areas that contribute to this line. But I would like particularly to highlight the contribution from a structuring fee related to our Brazilian private infrastructure business. These fees are not recurring on a quarterly basis since they depend on deployment activity. But however, given the size and the ongoing growth of our infrastructure platform, we do expect them to recur on an hourly basis, although with varying amount depending on timing and at the level of the single transaction. So then now moving to Slide 10. We are going to focus on cost trend. Compared to revenue growth of about EUR 61 million, cost increased by a total of about EUR 33 million. Distribution costs increased by EUR 24 million. This change is explained by the general increase in distribution costs, mainly within the Italian perimeter directly correlated to the growth of our assets and revenues and EUR 8 million as well from the growth of the variable and dispensing component, so an increase in marketing costs is also directly connected to the TNB project operation. And finally, EUR 4 million stemming from the increase in costs directly linked to the growth of our foreign business. The administrative costs were up by about EUR 11 million, and this is largely explained by the change in perimeter, meaning the line-by-line consolidation of Kennedy Capital and HighPost that contributed about EUR 4 million with offsetting effect from the FX. And we also would like to highlight anyway the cost discipline, especially concerning the Italian perimeter. And then D&A on the other hand, we see that it is substantially in line with the previous year. Moving to Slide 11. As you can see, considering the revenues and cost, the dynamic just explained, we're recording a strong EBIT growth of 12% or EUR 47 million year-on-year. Equally important, we recorded a growth in the recurring net profit of about 17%, EUR 44 million versus the first 9 months of last year. Before moving to the next slide, let's highlight also the significant contribution from the finance income item, which shows an increase of about EUR 62 million, driven by EUR 37 million from assets and portfolio performance, EUR 19 million from the fair value option and equity participation, EUR 9 million from interest and EUR 8 million from GP stakes & affiliates. And then also, we had a negative, in this case, negative impact of the IFRS for EUR 11 million. Now moving to Slide 12. We have the classic picture of our net financial position, which is a positive balance at the end of September of EUR 765 million, substantially the same value of last year compared to June, we have an increase of around EUR 120 million. That can be reconciled considering the pretax results of EUR 198 million less the tax advance of EUR 7 million, EUR 8 million, its M&A for EUR 8.5 million, the proceeds from the sale of RoundShield that contributed to the cash for EUR 38 million and then a technical adjustment of EUR 27 million from UCI units moved out from the net financial position. Moving to Slide 13. Let me share a key update on the TNB project. During the past month, we secured the antitrust approval to acquire the banking license. And I am delighted to announce today that we have signed yesterday a binding agreement with the Banca di Sconto. Our negotiation with FSI continued following the press release published to date. We have updated the project finalization time line to Q2 '26. This timetable establishes a clear and orderly process, providing Azimut and its shareholders with greater visibility on the final stages of the transaction. The schedule is fully aligned with the operational work already underway for the launch of TNB. And then I remind you, once again, the extraordinary long-term value of this transaction. So again, the EUR 1.2 billion potential total consideration plus the EUR 2.4 billion revenue guarantee plus the 20% stake that we will maintain in TNB. Turning to Slide 14. We have here shared the '25 targets. We confirm our net inflow target for the full year of EUR 28 billion to EUR 31 billion. We have already achieved more than EUR 15 billion of net inflows at the end of September. We saw preliminary figures for October and an expected contribution of about EUR 14 billion from the NSI integration could lead us to reach up the guidance. And then moving to Slide 15. Given the strong results achieved in the first 9 months, we are pleased to announce an upgrade to our '25 core group net profit target. We now expect to exceed EUR 500 million in '25 compared to our previous lower end guidance of EUR 400 million. Looking ahead to 2026, including the expected contribution from TNB in this year, as a result of the updated time line, we estimate group net profit to amount above EUR 1 billion. Finally, reflecting both the strength of our results and our solid capital position, the Board of Directors intend to propose announced the dividend policy for the 2025 financial year. This will be above last year EUR 1.75 per share, which represented a 61% payout on recurring net profit, further demonstrating our commitment to rewarding shareholders through sustainable and growing returns. We will share the final details with our full year '25 results presentation that will be happening at the beginning of March '26. Thank you for your time and your attention. Now I hand over to Giorgio, again. Medda Giorgio: Thank you, Alessandro, and I will move to Slide 16. So following the completion of the ordinary supervisory review by the Bank of Italy on part of our Italian business, we can say that we have full clarity and greater visibility on the regulatory time lines ahead. This gives us a very solid foundation to move forward with confidence towards the launch of TNB that is a key milestone in Azimut's evolution. The group strategic plan, Elevate 2030, which will include targets for all business lines and both the Italian and global platforms will be presented in full as previously announced to the market following the authorization of the TNB transaction. However, global expansion continues to be a cornerstone of Azimut's strategy, and we continue building on our presence in 20 markets. And we are very determined to continue strengthening our leadership among the world's leading independent players. And that is why, in the meantime, we have decided to share a few key guidelines focused on our global business that is a part not impacted by the supervisory review. This plan emphasize growth, diversification and sustainable value creation for shareholders. With Elevate 2030, we are certainly defining an even more ambitious growth trajectory, one that will showcase the full potential of our diversified global platform and reinforce Azimut's position as a truly global success story. But let us now take a closer look at what lies ahead, and I will move to Slide 17. So first of all, to help everyone to better understand the potential of our global operations, we started with a bottom-up analysis of the expected contribution in terms of net inflows from each region. This has historically been an area where the market underestimated our potential, and we believe these figures better illustrate the scalability of our platform. What we're showing here are the expected yearly net inflows from our global operations only, and we are excluding Italy. These targets are indeed very ambitious, but we see them as incredibly realistic. They are consistent with our historical growth trajectory, which also reflects a clear step-up as we continue to scale, broaden our investment solution base and bring innovation to our markets. And indeed, we believe a strong potential for Azimut to replicate the success that we have achieved in Italy. We expect total net inflows from our global platform between EUR 5 billion and EUR 8 billion per year, with the Americas region remaining a major growth driver, contributing EUR 2 billion to EUR 3 billion annually, supported by the integration of NSI in the United States, which will add approximately $16 billion or EUR 14 billion upon closing of the transaction at the end of the year. Our strategic affiliates led by Sanctuary Wealth in the U.S., AZ NGA in Australia, also very well positioned now to capture powerful structural trends and the shift of top financial advisers away from bank-owned networks towards independent platforms continues to accelerate and the ongoing intergenerational wealth transfer in both markets is expanding every day the addressable client base for advisory-driven models like ours. For the strategic affiliates, we are expecting to add between EUR 1.5 billion and EUR 2.5 billion of annual inflows, confirming the strength of our partnership model in high potential markets. The EMEA and Asia Pacific regions will also contribute steadily, driven by our ongoing expansion in markets such as Egypt, Taiwan and Singapore. And overall, this figure illustrates the depth and balance of our global business. In general, what I would like to stress here that the international component of Azimut is becoming an increasingly powerful engine of growth and value creation under the new strategic plan. So moving to Slide 18. Here, we are really converting the inflows into the overall asset base at the end of the period. And we are now projecting our global average total assets to grow from around EUR 54 billion to between EUR 95 billion and EUR 110 billion by 2030. This is a very exciting plan. We are essentially showing here our ambition to double our asset base. But certainly, it demonstrates the strength and maturity of our global platform. Achieving these goals will require certainly focus and determination, but I believe we have all the right elements in place. We have now a robust and diversified product offering across public and private markets. We have the ability to tailor solution to the specific needs of each client, and we have a unique entrepreneurial model and mindset that will allow us to move quickly and seize opportunities. This combination gives Azimut a unique and clear competitive advantage and positions us among the very few independent global players able to grow at scale while preserving quality and agility. And now moving to Slide 19. I want to really focus on margin. This is a very important element to help the market better understand what lies ahead and the true earnings power of our global business. Here, we show where our current net profit margins stand today by region and where we expect them to evolve by 2030. We have provided what is a wide enough range to capture different market conditions, but also we want to illustrate what is the significant operating leverage and the economies of scale that our global platform can deliver as it continues to grow. The Americas are expected to see margins rising from around 27 basis points today to between 25 and 35 basis points by 2030. And this will be our largest region by total assets, supported by the NSI integration and the planned launch of active ETFs, which will bring Azimut's global product capabilities to the world's largest market. EMEA remains our most profitable region with margins expanding towards 50 to 60 basis points, while we see the potential for the Asia Pacific region to gradually improve its contribution as the region scales and matures. Looking at these figures on a consolidated level, we expect the global business, excluding Italy and the strategic affiliates, to reach a net profit margin between 30 and 40 basis points by 2030, corresponding to an annual profit of approximately EUR 180 million to EUR 280 million. This compares with a margin of around 35 basis points and a net profit of EUR 70 million generated in the first 9 months of this year. Also, I think it's important here to put into perspective that since 2019, our global net profit has grown at a compound annual growth rate well above 35%. And this gives us a very strong base and clear visibility on the profitability path we are building towards 2030. I would move to Slide 19, 20 and 21. And on the next 3 slides, you see the same breakdown as before, but this time by business line rather than geography. And that should help everyone to cross check our assumptions and better understand the contribution of each vertical to the overall growth plan. I will not spend too much time here, but it's important to highlight the strength and balance across our global platform. And let me tell you that the Elevate 2030 plan will bring greater transparency to the market by showing our strategic and financial objectives through these 4 verticals that we have already introduced this year with the new reporting structure. This structure certainly enhances clarity, ensures consistency in how we represent value creation and makes it easier to appreciate the growth and profitability potential for each business line. And obviously, 4 verticals provide a diversified and complementary growth platform that is underpinning our market leadership, operational integration and long-term strategic partnerships. I would move now to Slide 23, where there is essentially highlighted what is a key pillar for Elevate 2030, that is strategic capital management. This is a framework designed to enhance our valuation to strengthen financial flexibility and deliver consistent and attractive returns to our shareholders. Our focus is on improving transparency and disclosure to help close the valuation gap that we continue to believe the market is still applying to the stock and not really truly appreciating the potential of Azimut. We are also proactively managing regulatory risk by simplifying our structure and ensuring greater operational clarity across jurisdictions. And we furthermore plan to unlock value from our global operations through a series of operations that could potentially include targeted demergers, dual listings and/or strategic partnerships. We're also very pleased today to announce a new share buyback program with a commitment to cancel up to EUR 500 million of repurchased shares over the next 18 to 24 months, equivalent to around 10% of our share capital. This initiative aims to maximize shareholder remuneration and reflects the constructive feedback that we have received from our investors over the last few months. And it's a clear signal of our confidence in the strength of the group, the resilience of our cash generation and our commitment to delivering tangible value to shareholders. Beyond this, we remain committed to maintaining a debt-free position given the strong cash flow generation of our business. However, we will preserve the optionality for future value-accretive M&A opportunities to be financed via debt. And as Alessandro has already highlighted, we will propose a new enhanced ordinary dividend for the full year 2025 versus the prior year. And certainly, we will give you more insight with our full year results in March 2026 when it comes to a broader and more comprehensive dividend policy as part of the Elevated 2030 plan. I mean, I think we can already anticipate that when it comes to shareholder remuneration, one key principle will be that any policy that we will announce to the market will be aligned with cash flow generation to ensure an attractive and sustainable payout over time. So let me move to the last slide, really to wrap up everything that we discussed and shared with you today. So first of all, we are upgrading our 2025 core net profit target to above EUR 500 million, and we project now net income to exceed EUR 1 billion in 2026. This reflects the solid momentum we have built throughout the year and continued strength of our recurring earnings. Second, we have made meaningful progress on the TNB transaction, gaining enhanced clarity on the time line for the next steps. And this gives us a clear regulatory and strategic pathway to move forward. Third, with Elevate 2030, we are releasing ambitious yet achievable targets for our global operations, and we project between EUR 5 billion and EUR 8 billion of annual net inflows over the next 5 years and total assets between EUR 95 billion and EUR 110 billion by 2030, with an expected net profit margin in the region of 30 to 40 basis points. And last point, our strategic capital management remains a key driver of value creation, supported by a EUR 500 million share buyback program with full cancellation of repurchased shares and the new dividend policy to be presented in 2026 after the completion of the TNB transaction. But as we mentioned, already we are providing an announced dividend payout for 2025, obviously applying on a payment in 2026. Together, we believe these initiatives position Azimut for a new chapter of profitable discipline and sustainable growth. With this, we are done and we certainly open the floor to any questions. Operator: [Operator Instructions] The first question is from Gian Luca Ferrari of Mediobanca. Gian Ferrari: Three for me, please. The first one is on the foreign business. I think what you are telling us today, Giorgio, is that the foreign operations are closing this year very close to the cost of capital you put in that development outside Italy. And given the trajectory you are disclosing today, is it fair to assume that by 2027, the IRR of this will reach 20% or something very close to that level? The second is on Nova. Last week, Amundi and then UniCredit, they have been pretty vocal in what is the relationship among them. I will not ask you the level of AUM you are expecting from UniCredit given the acceleration of the divorce, let's say, from Amundi. But I'm more curious to understand what is the level of margins after 2028? So after UniCredit will have exercised the call option. Is it fair to assume that your 20% in Nova will represent something like 15, 20 basis points on the AUM that UniCredit will have transferred at that point? The third question is, I don't know if I can ask this question, but are you eventually considering a dual listing of Azimut even in other stock exchange like in the U.S., for example? And sorry, if I may, the last one. I saw in the press release, you -- after the Bank of Italy inspection, you have some, let's say, adjustments to the business to be compliant with what Bank of Italy is asking to you. Are the costs related to that material or we are talking about a few million euros? Medda Giorgio: Gian Luca, I'll pick your first and second question. So regarding the foreign business or the global business, as we call it [indiscernible], you look at this year and you look at what we have delivered for the first 9 months, I think it would be fair to assume that we will generate a return on invested capital of between 13% to 15% that I think is above our cost of capital. So I think we are already proving value creation. And yes, indeed, when you look at the earnings trajectory over the next couple of years, certainly, I see as very realistic, a return on invested capital in the region of 20% within this time frame. When it comes to Nova, as you know, and I think it's important for me to stress it again, we will never, never disclose any confidential information regarding the activity of clients with our platform. We have never done that with any client. We will never do with Nova. But let me guide you towards some generic principles that govern our partnership with Nova. Certainly, the moment that UniCredit will exercise the call option to buy 80% of Nova, that should not have a material impact on earnings contribution. As already today, we have an agreement under which we are working like UniCredit was already an 80% shareholder. And when it comes to basis points, I think we've guided in the past a range between 40 to 50 basis points. I would assume that we are ballpark again in line with that level in the second stage of this partnership if we get to the second stage after the exercise of the call option. You were also asking about dual listing. Yes, indeed, the U.S. stock exchange remains a very viable option for us. Certainly, we see today a very significant valuation differential for players in our industry being listed there as opposed to be listed in European markets, but we will retain obviously full optionality in deciding which exchange will be eventually decided for our alternative listing. Alessandro Zambotti: I take the Bank of Italy side. So in general, as you said and as you probably read on the press, the report is focused on increase our strength in terms of [indiscernible] strategic planning. So nothing let's say, that cause us an impact on the business and therefore, on the P&L of the group. Therefore, it's just a matter to focus on paperwork and fix what, let's say, they found missing. But as you said also during the question, it's just a few, let's say, a few euros to spend to fix quickly the gap and then looking forward, focusing on our business. Operator: The next question is from Giovanni Razzoli of Deutsche Bank. Giovanni Razzoli: Two set of questions. The first one is on the target for the international operation contribution. You are targeting EUR 5 billion to EUR 8 billion of inflows, half of that are from the states. But if I look at the 9 months run rate, you are already at close to EUR 4 billion, EUR 4.5 billion with U.S. at EUR 2.5 billion. So I was wondering if we can consider the low end of the range, this EUR 5.8 billion contribution of inflows from the international operation as a quite conservative target. The second question relates to the announcement of the share buyback. I was wondering how shall we look at the 10% share buyback that you have announced in the context of the 3% treasury shares that you have already owned. So shall we assume that the 10% is on top of the 3% or you will proceed with the cancellation of the 3% and then on top of that, in 2 years' time, you will buy another 10% with the cancellation? And then as you have mentioned medium, long-term targets, given that your net financial position is very strong, actually, you are cash positive with a capital-light business, shall we assume that apart from this EUR 500 million share buyback, if I move forward, I don't know, 3, 4 years down the road, the share buyback becomes a kind of recurring component of your distribution strategy, let's say, EUR 500 million of share buyback in 2 years' time as a kind, as I said, of recurring contribution of your remuneration policy? Medda Giorgio: Yes, Giovanni. So let me start with the question regarding the EUR 5 billion to EUR 8 billion expected net new money from our non-Italian operations. Indeed, we have provided you a target. This is a target applied for a 5-year period. Certainly, we always work with the ambition of beating the targets that we set for ourselves. And indeed, I would say that the bottom end of that range assumes a deterioration in market conditions and things changing as opposed to what we are leaving now. But the range is a range, is a long period of time, and I would certainly with everyone in Azimut to make sure that our real objective is to beat that range. When it comes to the share buyback, I don't know which figure you are looking at, but I would say that probably today, treasury shares amount to 1% of our outstanding capital. And you should assume that the 10% is on top of this 1%. And for the question regarding what will happen in the next 3 to 4 years, I would certainly be thinking what we have announced today. And time will tell. I think we are making a very strong statement in terms of committing to ensure that our shareholder remuneration policy is inclusive and makes all our shareholders to benefit from the value that we create every day in our business around the world. What is important to say here is that after the TNB transaction, we'll be able to provide a more comprehensive shareholder remuneration policy, including also the ordinary payout policy when it comes to dividends. Operator: The next question is from Hubert Lam of Bank of America. Hubert Lam: [indiscernible] in the global business. Just wondering how much of that would you expect it to be coming from organic in your plans? And how much is it M&A? Do you need M&A to kind of get there? Or are you confident that organic, you can still achieve your targets? Second question is on the share buyback, the EUR 500 million. I'm just wondering in terms of timing when it could start, do you need the approval for the new bank first before you can start the share buyback? Or can it come before that? And lastly, any questions on the new bank. Any update in terms of expected profits you expect from this, both in '26 and maybe beyond that? Medda Giorgio: Hubert, I'll reply to your first 2 questions. I'm not sure I got right your first one. But let me start with the first one regarding organic growth from our global operations, the guidance we provided, you should assume it's mostly organic. And by the way, when you look at what we have done this year, again, the figure that we mentioned earlier is essentially mostly organic. So you should really consider any M&A contributing to this level. When it comes to the share buyback, as a matter of fact, the share buyback is live in the market because we had already approved the share buyback with our AGM in the first quarter this year. What the AGM will approve next year will be the renewal of the plan and the cancellation of the repurchased shares. But the share buyback is, as a matter of fact, right now live in the market. And as far as your first question is concerned, we missed it. Hubert Lam: Yes. Sorry about that. Yes, so the answer to the first 2 are very clear. The third question -- yes, sorry, on the new bank. Just wondering how much in terms of profit contribution we can expect from it in terms of delivering profits in '26. I know that's just the first year and also like beyond, any update in terms of guidance around that? Alessandro Zambotti: Well, nowadays, it's running around -- with the projection at the end of the year, it's around EUR 60 million for '25. Therefore, I would say we are going to be the 20% of this range less a few costs that obviously has to be incurred through the fact that it has no spending banks. Therefore, I would say that we are in this range. Operator: The next question is from Alberto Villa of Intermonte SIM. Alberto Villa: A few left. One is on the acquisition side. I read that your Chairman also indicated that there might be opportunities for future acquisitions, especially in LatAm. So I was wondering if you can give us an idea what is, let's say, of interest for the group in terms of completing the setup of the global operations you have. And broadly speaking, what is the leverage that you would consider as a good setup for the group if you find an interesting opportunity also inorganic in the framework of the -- also the capital remuneration and shareholder remuneration that you have in mind? Medda Giorgio: Okay. Thank you, Alberto. So your first question referring to the interview of our Chairman a couple of weeks ago in Italy. Indeed, we will continue to explore and to seek acquisition opportunities on a bolt-on basis and acquisitions that will never be material in terms of cash outlay and certainly will carry a strong strategic sense in terms of adding and complementing our existing businesses around the world. I think during the interview, it was mentioned our interest in Latin America. Let me tell you that there are a few situations we are looking at in Brazil, but that would be negligible in terms of cash investment for the firm, but certainly we will strengthen our distribution business in the country. And when it comes to the leverage, we often said that we certainly recognize the merits of having an optimal capital structure policy. And in general, we would guide the market when it comes to what we would envisage in the case of a transformative or material M&A transaction in terms of leverage, probably in a situation where we have a net debt to EBIT in the region of 1 to 1.5x ratio. Operator: The next question is from Elena Perini of Intesa Sanpaolo. Elena Perini: I have some left. The first one is about your new net profit target for '25 and 2026. So basically, you move the more than EUR 1 billion target to next year due to the timing of the conclusion of the TNB transaction, if I understand correctly. And while you have for 2025, a target about EUR 500 million. In terms of targets, just to refer to your global business. The wide range that you set for 2030 is EUR 180 million to EUR 280 million is only due to the different range of annual flows and due to the different potential margins on the assets? Or are there any other factors that could explain this wide range? And then a clarification about other income and tax rate. About other income, you mentioned structuring fees. Are there any recurring items for next quarters too? Or do they represent a one-off item? While for the tax rate, I think that there are some one-offs for this quarter as you confirm your guidance of 25% for the full year, but I'm asking you about this. Alessandro Zambotti: Yes. Thank you, Elena. I'm going to take a few of your questions, and then Giorgio will conclude. So starting from your first part relating to the net profit, the new target and as well the moving of the EUR 1 billion to the '26, it's clearly -- your understanding is correct. I mean the contribution of TNB that we plan -- I mean, we're planning at the end of the year is not going to happen. Therefore, obviously, the contribution and the equity transaction is going to happen in '26 and therefore, as well the P&L impact from this transaction is going to be booked next year. And at the same time, following the good results and the good trend of the group, we were updating the guidance for the, let's say, the simple reason that the projection that we see, the trajectory that we see for the last few months of the year is if nothing happens, let's say, complicate, we will be able to get the target. Then you refer to the other income. As you were saying, there is a one-off effect that is linked to the structuring fees. But at the same time, as I was saying at the beginning, it has not to be considered one-off for the yearly basis because it's quarterly basis, for sure, we cannot say that every quarter, we will have this contribution. But looking on a yearly basis, this amount I mean could happen that following this type of services that we are providing, they came up -- I mean, a contribution as well on the other income on the future years. And then at the level of the tax, I think it's more close to the constant of seasonability. I mean, this quarter, it's always lower than in December, considering also the provision of all the dividends coming from the other countries, we will probably get higher impact of tax for that, we kept the guidance stable as per the previous. Medda Giorgio: And yes, when it comes to the 2030 margin targets, the EUR 180 million to EUR 280 million net profit from global operations. Look, this range is admittedly very large. It reflects simply the addition of the lower bound targets for each division or geography and the upper bound. There is nothing else there. It certainly is a basic assumption that the business mix going forward will essentially remain unchanged or not dramatically different from what it is today. But as I said, we work every day to beat the target that we give ourselves, and we certainly do our best to even do better than what we are disclosing today. It's 5 years, it's a pretty long period of time, but we are starting off a very strong base, and I see us capable of doing very, very well. Operator: The next question is from Ian White of Autonomous Research. Ian White: Just a couple from me, please. First of all, can you call out some of the most important drivers of the improved organic net inflow performance this year, please? I'm particularly interested in where you think you've seen the strongest growth in your market share, thinking about the organic flows specifically. That's question one. And question two, in terms of the Bank of Italy's inspection, can you say a bit more about the specific findings there and the remediations that you're going to introduce? Am I right to read into the statement today that the delay to TNB approval is linked to the regulators' findings? And if so, what's your view as to why the regulator has connected those things, please? Medda Giorgio: Okay. Let me take your questions. So I'll start with the first regarding the underlying drivers of our terrific net new money performance this year. I think we -- if you look at the presentation that we have shown earlier, Slide 6, you find what is a pretty accurate detailed breakdown in terms of net new money to different product lines as opposed to different geographies. Let me tell you from a qualitative standpoint that fund solutions have been doing very well in Italy. Certainly, we have the contribution of Nova here, but let me mention what also we have done in Turkey, in Egypt, in the U.S., that is certainly our key product, our bread and butter, and we are proving now to be able to grow both catering to individual clients and institutional as well in terms of wholesale agreement. Let me mention that our Wealth Management business has been this year delivering incredible growth out of Asia, out of the Middle East. Switzerland, Monaco as well doing better than the previous years. And we see now what is a very sustained momentum that is a testament of our ability of building now a cross-border platform and being able to deal with high net worth, ultra net worth individuals that are recognizing Azimut's the ability and the capability to deliver performance vis-a-vis even larger players. Then when it comes to your question regarding the ordinary inspection from Bank of Italy, yes, again, I would refer to the press release, you should assume that we are subject to inspections every week. As you can imagine, we operate across 20 countries. We are subject to the supervision of 20 regulators, sometimes in certain markets like in the U.S. by 2 regulators in the same country. That is also the case for Italy, by the way. And there are routine inspections. So you can say that every day, we are subject to an inspection. So I do not see the Bank of Italy inspection in Italy has been particularly different from others that we have been subject to. And also, let me stress you that the -- let's say, the topic of the inspection was not the announced transaction with TNB. The inspection was very much covering for our, let's say, asset management product factory activities and has been very much referring to this aspect of the business that is not related to the announced transaction with FSI. One of the outcomes of the transaction was that we need to put in place some very ordinary remedial actions. And as you can imagine, although these actions are not related to the TNB transaction and considering the time line is relatively short, we will work on this remediation plan with some very close deadlines, also suggesting that there's nothing dramatic there, maintaining what is an achievable target for the transaction to close within Q2. By the way, this inspection started even before the binding agreement was signed with FSI, and it's really to be seen as completely unrelated. Maybe unfortunate in terms of timing, but to be honest, not really a reason of concern for us. Ian White: Okay. If I can just clarify, I'm not sure if I missed this. In terms of the -- is the delay to TNB approval a direct consequence of things that the regulator has found on its -- during its ordinary inspection? Or am I reading that incorrectly? Medda Giorgio: Not at all. It's procedural, if you want. And as we said very often, the 2 things are separate. There is no really -- we should not see the TNB transaction as the inspection that could be related to each other. As a matter of fact, the transaction occurs in a way where the company that is spinning off half of our network is the one that was subject to the inspection, but nothing of the activities that will be spun off has been subject to the inspection itself. It was mostly related to funds management to discretion portfolio management, really nothing at all that was related to the asset base that will be spun off. Operator: [Operator Instructions] Mr. Medda, there are no more questions registered at this time. Medda Giorgio: Okay. Let's close the call here, and let me wish everyone a good end of the year. And obviously, we keep looking forward to seeing you soon. Thank you. Operator: Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.
Operator: Hello, and thank you for standing by. Welcome to Allogene Therapeutics Third Quarter 2025 Conference Call. [Operator Instructions] Please be aware that today's conference call is being recorded. I would now like to turn the call over to Christine Cassiano, Chief Corporate Affairs and Brand Strategy Officer. Ms. Cassiano, please go ahead. Christine Cassiano: Thank you, operator, and welcome, everyone, to Allogene's Third Quarter 2025 Conference Call. After the market closed, Allogene issued a press release that provided a business update and financial results for the third quarter of 2025. This press release and today's webcast are available on our website. Following our prepared remarks, we will host a Q&A session. We recognize that historically, questions have been multifaceted, but note that we will endeavor to keep this call to under an hour. I'm joined today by Dr. David Chang, President and Chief Executive Officer; Dr. Zachary Roberts, Executive Vice President of Research and Development and Chief Medical Officer; and Geoff Parker, Chief Financial Officer. During today's call, we will be making certain forward-looking statements. These may include statements regarding the success and timing of our ongoing and planned clinical trials, data presentations, regulatory filings, future research and development efforts, manufacturing capabilities, the safety and efficacy of our product candidates, commercial market forecast and financial guidance, among other things. These forward-looking statements are based on current information, assumptions and expectations that are subject to change. A description of the potential risks can be found in our press release and latest SEC disclosure documents. You are cautioned not to place undue reliance on these forward-looking statements, and Allogene disclaims any obligation to update these statements. I'll now turn the call over to David. David Chang: Thank you, Christine. This quarter has been about conviction, conviction in our science in the path we have chosen and in the future we are building for patients. We are aware of the shifting conversation in the field. Every new modality brings excitement and speculation about what the future might hold. But true innovation isn't about chasing what's next. It is about delivering what patients need now. And if a platform can safely, effectively and at scale deliver curative therapies, it doesn't just shape the future. It redefines it. At Allogene, our focus has never wavered. We are advancing the platform we believe is not only essential to making cell therapies accessible and scalable, but one that could fundamentally and the current paradigm and even the one others are still imagining by making the promise of curative onetime off-the-shelf cell therapy a reality today. And that's exactly what allogeneic cell therapy represents. It's not a breach to something else. It is the foundation. Allogeneic technology delivers the scalable backbone needed to democratize access, reduce the overall cost of care and bring transformative and potentially curative treatment to far more patients than ever before. We expect allogeneic therapy to be central across oncology and autoimmune disease because it combines the precision and power of autologous with a flexible, efficient and commercially viable model, no other approach can. Its capacity for multiplex gene engineering allows the creation of future platform products within a single cell, an advance that we believe will be critical for addressing complex cancers, including solid tumors. This is an incremental progress. It's a leap forward that reshapes what's possible. We have done the hard work to make the future real. Our leadership in manufacturing, translational science and clinical development positions Allogene to endure and lead, setting the standard for how cell therapy can be delivered at scale and with impact. Each of our programs, cema-cel, ALLO-329 and ALLO-316 reflects that strategy to make cell therapy scalable, practical, successful and in some cases, curative. At Allogene, we are not waiting for the future of cell therapy. We are creating it with conviction, with data and with a platform built for lasting impact. As we move into next year, we are preparing for what we expect to be a defining moment with pivotal interim data from cema-cel in the ALPHA3 trial in first-line consolidation and proof of concept from ALLO-329 in autoimmune disease, both milestones that we believe will shape the next era of cell therapy. With that, I'll now turn it to Zach to share updates on our R&D progress. Zachary Roberts: Thanks, David. Our programs this quarter continue to demonstrate the conviction David spoke of, conviction in our science and our execution and the discipline required to advance truly innovative medicines. Across ALPHA3, Resolution and Traverse, we're driving forward a portfolio that spans earlier line lymphoma, autoimmune disease and solid tumors. Each is a distinct challenge, but together a unified demonstration of the strength and versatility of our allogeneic platform. In ALPHA3, our pivotal trial of cema-cel has now been streamlined into a 2-arm randomized study comparing treatment after standard Fc lymphodepletion versus observation. This structure balances efficacy, safety and scalability, which are critical for translating CAR-T therapy into earlier lines of treatment. We are now at more than 50 active sites across the U.S. and Canada with expansion into Australia and South Korea expected early next year. The planned futility analysis focused on MRD conversion remains on track for the first half of 2026. A positive outcome would not only demonstrate disease modification in earlier line lymphoma, it would also mark a key step toward a potential BLA submission. As we look ahead to the upcoming futility analysis and the questions we often get about what success looks like at this stage, there are 2 key benchmarks worth keeping in mind. The first is the pivotal POLARIX study, and the second is the recent IMvigGor-11 trial in bladder cancer, which is highly analogous to what we're doing with ALPHA3. The POLARIX study, which evaluated polatuzumab plus chemoimmunotherapy in frontline DLBCL demonstrated a modest 7% improvement in progression-free survival over standard treatment. That result alone underscores how much opportunity remains for meaningful progress and the transformative potential of ALPHA3. While ALPHA3 is the first study of its kind in LBCL, the concept of consolidating remission in patients at high risk of relapse has guided adjuvant trials in solid tumors for decades. Highly sensitive MRD tests are emerging as powerful tools to identify patients at greatest risk of progression. The recent data from the IMvigor 11 trial in bladder cancer is a powerful illustration of this approach. Patients with no evidence of disease after definitive frontline treatment, in this case, surgery, underwent a ctDNA-based MRD test. Those who are ctDNA positive while in remission were randomized to immunotherapy or placebo. Notably, ctDNA clearance differed by only 11% between arms at cycles 3 or 5, yet both the primary endpoint of disease-free survival and the key secondary endpoint of overall survival were statistically significant, representing a potentially practice-changing advance. While every study is different, the new IMvigor 11 data provides a valuable analog for illustrating the potential impact of this kind of approach. Achieving an approximately 30% delta between cema-cel and observation would represent the largest improvement in lymphoma outcomes since the approval of rituximab. Given these reference points, we believe our study is well positioned to deliver a highly meaningful difference and the potential for a successful trial outcome. Together, these insights reinforce our confidence in the strength of the ALPHA3 program and its potential to meaningfully advance lymphoma treatment. As we look beyond cema-cel, our Dagger technology continues to demonstrate its value across indications. In the TRAVERSE trial, the Dagger technology enabled ALLO-316 produced durable responses in nearly 1/3 of patients with metastatic kidney cancer and high CD70 expression. These responses following standard Flu/Cy and a single infusion of ALLO-316 highlight the built-in lymphodepletion advantage of the Dagger technology, enabling best-in-class CAR T cell expansion in solid tumors. The TRAVERSE trial provided important insights that helped shape the design of our dual CD19/CD70 construct in autoimmune disease. Rather than repurposing a construct from another indication, we set out to create something truly fit for purpose designed from the start with a long-term application in mind for autoimmune disease and the patients who would be treated. We were the first to engineer CAR specifically for this setting, pairing dual targeting with our Dagger technology to achieve intrinsic built-in lymphodepletion through selective immune modulation. ALLO-329 is a first-in-class allogeneic CD19, CD70 dual CAR T product designed to target both CD19-positive B cells and CD70-positive activated T cells, which are key drivers of autoimmune disease. This approach is intended to simplify administration, improve tolerability and extend the reach of CAR-T therapy to a much broader patient population. If successful, it could represent a step change in the treatment of immune-mediated diseases. That is what we aim to achieve in the resolution study, our Phase I basket trial in autoimmune disease, which is now enrolling for lupus, myositis and scleroderma. We expect to report translationally important biomarker and early proof-of-concept data in the first half of 2026. Dave and I spend a great deal of time in the field of investigators. Their enthusiasm remains strong because they see how these studies could fundamentally change the accessibility of cell therapy. By enabling treatment delivery within community networks where most patients receive care, we are aligning with how these institutions operate clinically and economically. This model reduces referral barriers, simplifies logistics and supports sustainable integration of advanced therapies into routine practice. Clinical development is complex. We compete for patients, particularly in autoimmune indications and face both scientific and operational challenges. But each challenge strengthens our understanding and sharpens our execution. That is the nature of innovation, iterative, demanding and grounded in data. Collectively, our programs underscore that allogeneic CAR T is not an iteration. We believe it is the foundation upon which the next generation of cell therapy will be built. The science continues to advance. The early signals remain strong, and our focus is on turning that progress into real-world impact for patients. With that, I'll hand the call over to Geoff. Geoffrey Parker: Thank you, Zach. The operational and scientific progress that David and Zach described is backed by a strong financial foundation and disciplined capital management. Our focus remains on advancing our clinical priorities while maintaining flexibility to capture long-term value for shareholders. As of September 30, 2025, we had $277.1 million in cash, cash equivalents and investments. Our disciplined approach to resource management continues to support a cash runway that extends into the second half of 2027. R&D expenses for the third quarter were $31.2 million, including $2.8 million of noncash stock-based compensation. G&A expenses for Q3 2025 were $13.7 million, including $5.9 million in noncash stock-based compensation. Net loss for third quarter was $41.4 million or $0.19 per share, including noncash stock-based compensation expense of $8.7 million. We continue to expect 2025 cash burn of approximately $150 million and full year GAAP operating expenses of approximately $230 million, which includes an estimated noncash stock-based compensation expense of approximately $45 million. This guidance excludes any impact from potential business development activities. The impact of our allogeneic platform extends well beyond our disciplined cost structure. By manufacturing product in advance and at scale, we lay the groundwork for a more efficient and sustainable model for the broader health care system. Allogeneic therapies have the potential to meaningfully lower the overall cost of care for cell therapy, expand access beyond specialized centers and make transformative cell therapies available to patients in a way that is both clinically practical and economically viable. With important clinical catalysts on the horizon and a solid financial foundation, we remain confident in our ability to execute and deliver on the opportunities ahead. We will now open the call for questions. Operator: [Operator Instructions] Our first question comes from the line of Salveen Richter with Goldman Sachs. Salveen Richter: For the futility analysis in the first half of next year, could you see any data beyond MRD conversion? And can you just expand on the 30% bar that you commented on? And then just remind us how enrollment is progressing for ALPHA3 and whether you've seen any changes post discontinuation of the FCA LD arm earlier in the year? Zachary Roberts: Salveen, this is Zach. I'll go ahead and answer that one. So for the first part of your question, will we be sharing anything additional besides the MRD conversion. At this time, we plan to really focus on the MRD conversion. This is not an interim analysis in which we intend to allocate alpha. So we really are looking at this MRD conversion and not any of the primary endpoints for efficacy. As far as the 30% bar that we mentioned in the prepared remarks, I think we went into some detail as to why we think that, that would be a pretty significant win for cema-cel in that trial with the benchmarks of the POLARIX data showing a 7% improvement in PFS in frontline lymphoma and then sort of looping in some recent data that was published from an analogous trial in bladder cancer, showing an 11% MRD clearance in that clinical context, yet still having a significant primary endpoint win on disease-free survival as well as an overall survival win there. So we think that 30% would be a pretty strong showing for cema-cel as it pertains to the MRD clearance rate. And then I think the third part of your question, Salveen, was around enrollment. And we'll say -- I'll reiterate here that we're on track for our -- the interim analysis, the futility analysis in the first half of next year. As far as impact of the study conduct change when we had the grade 5 event over the summer and went to a 2 arm as instead of a 3 arm, I think the general view of the investigators is that they are pleased to be working with a regimen that they consider a standard in CAR-T and not having to use an additional component with the CD52 antibody. So it appears as though that has had a slight uptick in terms of the patient screening for this trial. Operator: Our next question comes from the line of Tyler Van Buren with TD Cowen. Tyler Van Buren: This is Sam on for Tyler. Just for the over 50 U.S. and Canada active sites, what percent of these have made it through that initial internal setup period and are now able to start actively enrolling patients? Zachary Roberts: Sam, this is Zach again. We have gotten a lot better at forecasting how long that internal setup takes as well as sort of incorporating that into our time lines. So I would say that of the over 50 that are active, it's going to be close to all of them that are open to enrollment. Only the most recently activated sites might still have a few remaining things that they need to do before they switch on. But for the most part, all 50 of those 50-plus are actively screening and enrolling patients. Operator: Our next question comes from the line of Jack Allen with Baird. Jack Allen: Congrats to the team on the progress made over the course of the quarter. I guess I'll ask one on the autoimmune program with 329. It seems like that's starting to get off the ground here, and you're going to have an update in the first half of next year. I just wanted to hear any updated thoughts you have around the size and breadth of the data set we should expect next year from that program. David Chang: Chad, this is David Chang. Let me take that question, giving Zach a little bit of break. In terms of the scope of that data communication, as we have previously said, there will be a handful of patients where we can show biomarker as well as the early clinical responses. So that's the extent of it. And frankly, what we have seen with autologous programs is a handful of patients are sufficient to really understand what's going on with the CAR-T therapy. So we are hoping that the initial communication early first half of next year will be a very meaningful communication. Operator: Our next question comes from the line of Sami Corin with William Blair. Samantha Corwin: On the progress I'm curious how many patients have consented for MRD testing now in ALPHA3 and if you're seeing the expected rate of MRD positivity that you initially theorized you'd see? Zachary Roberts: Sami, it's Zach. So I don't think we have -- since we made that update earlier this year around the number of patients who had consented, we haven't really been providing kind of regular updates on that. I can say, generally speaking, that the pace of consenting has at least held steady since that early part of the year. So we're really growing numbers. And as far as the MRD positive rate goes, it is holding steady to our assumptions. Operator: Our next question comes from the line of with Asthika from Truist. Karina Rabayeva: This is Karina. So Caribou recently reported that their allogeneic CAR T product derived from younger donors demonstrated improved durability. Have you observed similar associations in your experience? David Chang: Carina, let me take that question. Yes, we follow Caribou and in terms of their recent announcement of the result looks pretty encouraging. But in terms of the material, I mean this is something that we have been following pretty closely, and we have a good way to identify the exciting materials that will result in very potent and consistent products. Operator: Our next question comes from the line of Samantha Semenkow from Citi. Samantha Lynn Semenkow: Another one on the autoimmune program. I'm wondering, there's some recent data in the autologous space in pemphigus where there was no lymphodepletion in that trial that showed some pretty encouraging results. I'm wondering if there's any read-through that you can take into your program. Obviously, you have the CD70 CAR as well. But I'm curious if this increases your optimism on showing pretty robust efficacy without lymphodepletion. David Chang: Samantha, Dave here. Thanks for that great question. I have to say that what we are seeing in both autologous CAR-T therapy, so obviously, autologous and allogeneic, there are different issues. But what we have seen just gives us even higher confidence that ALLO-329. This is CD19 dual CAR that has built-in lymphodepleting capability that ALLO-329 in the low-volume setting, such as in the autoimmune disease setting where it targets essentially the resident B cells and activated T cells, it will work well without the lymphodepletion. Obviously, we have to show that. And just as a reminder, in the ongoing study, we will be testing 2 different cohorts, one with a reduced lymphodepletion. So this is just with the cyclophosphamide alone. And the second cohort will be without any lymphodepletion. Operator: Our next question comes from the line of John Newman with Canaccord. John Newman: So David, given that 329 is pretty unique in that it targets both B cells and activated T cells, I'm wondering, in the initial data readout, will you be able to get a look at the phenotype of the remaining T cells, just to see if perhaps there's anything left after you hopefully wipe out all the CD70-positive T cells. David Chang: John, I think that's definitely something that we are looking -- we will be looking at, but I think it will be -- now that's also going into very nuanced questions about how the CD70 is working. I mean we certainly have looked at the fraction of CD70 positive versus CD70 negative T cells. And keep in mind, most plascent T cells are CD70 negative and are not affected by ALLO-329. And there's a real benefit of just eliminating activated T cells and activated T cells here potentially those that are contributing to the autoimmune disease itself as well as our reactive T cells. So in terms of how much data we will be sharing when we announce the proof-of-concept data in the first half of 2026, -- let me not go too much into that, but the question is really very relevant, and we will certainly be looking at CD70 positive and CD70 negative fractures. Operator: Our next question comes from the line of Clara Dong with Jefferies -- our next question comes from the line of Reni Benjamin with Citizens Bank. Reni Benjamin: Also for ALLO-329, -- when you talk about the biomarker data, David, are there any in particular that would alert you to achieving a B-cell reset? And when we get those results, will the results be robust enough that it can help you, help us as an analyst and decide which indications you might move forward with? David Chang: Yes. Great question. I mean there are 2 parts to your question. One is whether the biomarker data will give us a lot of insight about how AL-329 is working. Having seen most of the data that's coming out in this space from a CAR T, I do believe that the biomarker data will be very meaningful. But also, we intend to show some early clinical responses depending on how long the patient has been followed up. So when we communicate the proof-of-concept data in the first half of 2026, it will be more than just a biomarker. There will be early sort of clinical responses that may corroborate with what we see in the biomarker data. The second question to me is probably the most fascinating one. And if anything, I believe that we have probably very broad indications that we can potentially consider. The fact that 329 targets both CD19 and CD70 really allows us to not just think about those autoimmune disorders that are heavily B cell driven, but also autoimmune diseases that are very T cell dependent or has a big T cell component. So essentially from the rheumatology indications to neurology indications such as multiple sclerosis or even metabolic indications such as type 1 diabetes, and it could be considered. So stay tuned. Operator: Our next question comes from the line of Brian Chen with JP Morgan. Lut Ming Cheng: This is Ron on for Brian. Can you talk about your level of confidence in the MRD conversion to event-free survival? And then when you said around 30% MRD conversion as the bar, can you clarify a bit on the time point that is going to be meaningful for LBCL? And then how soon dosing do you think we can reach that level of conversion? Zach, do you want to take that question? Zachary Roberts: Yes, I can take that question. So Ron, I may need to have you repeat 1 or 2 of them. But I think the first question was how confident are we in the prognostic value of MRD conversion as it relates to the study endpoints, I would say we're pretty confident, high confidence actually, given everything that we know about the performance of this assay after frontline, which was recently published in JCO as well as after CAR-T has been shown at ASH a couple of years in a row. The test seems to be pretty good and actually correlating with long-term outcomes. Can you repeat the next 2 questions? I heard the second one, but I didn't hear the third one. Lut Ming Cheng: Yes, of course. Sorry. When you said the bar you said of 30% MRD conversion, can you clarify a bit on the time point that's going to be meaningful for LBCL? And then how soon after dosing do you think we can reach that level? Zachary Roberts: I see. Okay. So yes, the 30% that we've been talking about, I think we've provided some context already on this call why we picked that number. I mean another way to look at that is that's equivalent or maybe even slightly better than what rituximab brought when it was added to CHOP. So if the MRD conversion is roughly predictive of clinical endpoints, as I just described, I think it is, that would be a pretty significant win. Some might even call a home run. As far as the time point goes, we haven't gone into detail around what exactly -- what time we're drawing these MRD results. But what I can say is that is a pretty dynamic test, meaning that it goes up fast and it goes down fast. And so we are able to assess MRD relatively soon after the CAR-T is infused. Again, we haven't specified exactly what that time point is. But we are pretty confident that the time point that we selected is going to be predictive for the clinical outcomes. Operator: Our next question comes from the line of Luca Issin with RBC Capital Markets. Luca Issi: This is Catia on for Luca. Congrats on the progress this quarter. And if I can push on the last question on the timing of analysis for MRD. Is the futility study for stopping the trial as MRD is below your bar of 30%. And I think you mentioned the last time the 30% MRD bar is partially based on other autologous CAR-Ts objective response rate. And correct me here, if I'm not understanding this correctly, but that is from a potentially much longer follow-up. So is there a chance that you see insufficient MRD at your futility analysis first half next year, but we'll probably just have to give it more time. Any color there much appreciated. David Chang: Yes. Let me take that question. I think there are some questions still around what would look good for the study. And in terms of the MRD conversion, which is the primary -- the reference point that we will be looking at the futility analysis, I think we are very well grounded with the assumptions that we are making, and that assumption is supported from many different angles, the data that's coming from the autologous CAR T therapy as well as more new data coming from other MRD-based studies. So we feel very comfortable about how we will be conducting the futility analysis in the first half of next year. Operator: Our next question comes from the line of Robert Burns with H.C. Wainwright. Robert Burns: This is Katie on for Rob. My question is more about your -- if you have any more recent interactions with the FDA and if you feel like the kind of move towards greater flexibility in CAR-T oversight might give you some accelerated pathways or reduce some friction for you guys to get to market. David Chang: Yes. We have a lot of ongoing communications with FDA. And so far, it has been very timely and very productive. And the question that you are raising, it is a very interesting one. I mean, I think we will have to see when the time comes, but all the indications that we can make from what FDA has said is that a single-arm approach with CAR-T therapy, that path is still wide open. And FDA is carefully reviewing the other side of the BLA requirement, what is needed on the CMC side. So we view this to be very positive for what we are doing. Operator: Our next question comes from the line of Clara Dong with Jefferies. Unknown Analyst: [Technical Difficulty] I apologize for technical issues. And just one question from me. How are you controlling for variability in the MRD assay sensitivity, if any, across different sites? And what steps are you taking to ensure consistency in MRD conversion assessment for the futility analysis? Zachary Roberts: Claire, that's an easy one. The MRD test is all being done centrally by Foresight Diagnostics. So all the sites are doing is collecting the samples and then sending them into the central lab. So we don't expect there to be any kind of technical variability in the test performance. Operator: Ladies and gentlemen, that concludes our question-and-answer session. I would now like to turn the conference back over to David for any additional comments. David Chang: Thank you, operator. Let me close out by saying that everything we have built over the past 7.5 years has led to what's ahead in 2026. There are many ideas about where cell therapy is headed, but progress depends on staying focused on what is real and achievable. At Allogene, we kept our focus on building therapies that are scalable, reproducible and ready for patients. In the first half of 2026, we expect 2 major milestones, interim futility data from ALPHA3 with stem-cell in first-line consolidation and proof-of-concept results from ALLO-329 in autoimmune disease. These will not be theoretical advances. If successful, they will mark true clinical validation of the allogeneic platform, shaping our company's trajectory and building broader confidence in the potential of allogeneic CAR T therapy. The opportunity ahead is significant. We are entering 2026 with conviction, clarity and momentum and are excited for what the coming months may hold. Operator, you may now disconnect. Operator: Thank you. Ladies and gentlemen, thank you for your participation in today's conference. That does conclude the program, and you may now log off and disconnect.
Operator: Good afternoon, everyone, and thank you for participating in today's conference call to discuss Clarus Corporation's financial results for the third quarter ended September 30, 2025. Joining us today are Clarus Corporation's Executive Chairman, Warren Kanders; CFO; Mike Yates; President of Diamond Equipment, Neil Fiske; and the company's External Director of Investor Relations, Matt Berkowitz. Following the remarks, we'll open the call for your questions. Before we go further, I would like to turn the call over to Mr. Berkowitz as he reads the company's safe harbor statement within the meaning of the Private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward-looking statements. Matt, please go ahead. Matthew Berkowitz: Thank you. Before we begin, I'd like to remind everyone that during today's call, we will be making several forward-looking statements, and we will make these statements under the safe harbor provisions of the Private Securities Litigation Reform Act. These forward-looking statements reflect our best estimates and assumptions based on our understanding of information known to us today. These forward-looking statements are subject to potential risks and uncertainties that could cause the actual results of operations or financial condition of Clarus Corporation to differ materially from those expressed or implied by the forward-looking statements. More information on potential factors that could affect the company's operating and financial results is included from time to time in the company's public reports filed with the SEC. I'd like to remind everyone this call will be available for replay starting at 7:00 p.m. Eastern Time tonight. A webcast replay will also be available via the link provided in today's press release as well as on the company's website at claruscorp.com. Now I'd like to turn the call over to Clarus' Executive Chairman, Warren Kanders. Warren Kanders: Good afternoon, and thank you for joining Clarus' earnings call to review our results for the third quarter of 2025. I am joined today by our Chief Financial Officer, Mike Yates, who will cover our third quarter results, including Adventure segment performance as well as Neil Fiske, who will discuss our Outdoor segment. During the third quarter, despite a difficult global consumer market, we made progress executing against our strategic plan. Our quarterly results reflected incremental financial improvement as we continue to reshape our organizational structure, product offering and go-to-market approach while also balancing the real-time evolution of global demand trends and consumer sentiment. Clarus generated net sales of $69.3 million, in line with our expectations, which was a 3% increase over the same period last year and quarterly adjusted EBITDA increase of 15%. Mike and Neil will detail the segment figures, but at a high level, these increases were driven by strong outdoor demand in North American wholesale, our largest channel, and success with the new adventure customer in Australia and sales from RockyMounts. A key highlight in the Outdoor segment has been the success of the revamped Black Diamond apparel line, which saw sales growth of 29%. Apparel is critical to our growth strategy, and we continue to be encouraged by positive signs that our new approach to apparel and enhanced creative direction is resonating with customers in both the retail and direct-to-consumer channels. Neil and his team have done an outstanding job prioritizing our best customers and our most profitable products and styles, evident in the stronger quality of revenue. Full-price product sales increased, sales from discontinued merchandise declined significantly, and the highest margin A styles represent approximately 70% of our inventory, which is a figure that has continued to trend upward in recent quarters. Now turning to our Adventure segment. We continue to make operational progress during the third quarter and have been pleased with the direction of the business under the new leadership team. There is significant work to do, but our simplified organizational structure is a step in the right direction. Of note, Q3 SG&A was down $600,000 year-over-year, driven by the reorganizations we completed in November 2024 and July 2025 as well as other expense reduction initiatives. On an annualized basis, we have taken out $1.1 million of fixed costs from the business in our most recent reorganization. Counterbalancing these positive developments, macro trade and consumer headwinds continue to weigh on near-term financial results across both segments. While the latest trade deal should ease some of the tariff burden, Outdoor and Adventure margins and cash flows were again pressured by increased tariff costs and cash outlays in the third quarter. Our Outdoor segment also dealt with significant losses on FX contracts in 2025, which amounts to $600,000 EBITDA impact in the third quarter. When these contracts roll off in 2026, we will see a lift in product margins. At Adventure, margins came in below expectations, primarily due to a combination of tariff-related headwinds on products sold in the United States, higher freight costs to customers and aggressive pricing of slow-moving inventory as we work through SKU rationalization and overall inventory simplification. In addition, pricing in several of our markets, particularly Australia, has not kept pace with inflation or our cost base, which has contributed to margin erosion. We will continue to take proactive steps to address these issues, including price increases in our U.S. RockyMounts line and a planned pricing reset in ANZ to restore profitability. Overall, in the face of a challenging macro environment, we continue to take decisive actions to enhance margins and set the stage for sustainable growth and profitable growth over the long term. With that, thank you for being with us today, and I will turn the call over to Neil. McNeil Fiske: Thanks, Warren. Turning to Slide 6, I will review the Outdoor segment's Q3 performance and our expectations for the remainder of 2025. Overall, we delivered solid results for Q3 in the face of stiff macro trade and consumer headwinds. I'm pleased with our continued progress, the strengthening of the Black Diamond brand and reshaping of the business to be more focused, more profitable and more competitive. Revenue, gross margin and EBITDA were all up for the third quarter compared to prior year's third quarter, excluding PIEPS. Costs were down and inventories ended the period in great shape. As with my last update, I'll address tariffs and currencies at the top of my remarks. My remarks exclude the PIEPS brand, which we divested on July 11, 2025, in the year-over-year comparisons. First, tariffs. In early May, we initiated the first phase of our tariff mitigation plan, which included raising prices, negotiating vendor concessions, airfreighting products where necessary and accelerating our exit out of China. On our last call, we estimated that in 2025, we could offset roughly half of the tariffs that were in place at the time, which included 50% on steel and aluminum, 54% on China and a 10% reciprocal tariff on most other countries. Since then, reciprocal tariffs have increased from the original 10% to a range of 20% to 35% or more. We estimate the unrecovered impact of tariffs on EBITDA will be $2.5 million to $3.5 million in 2025. With the second round of tariff mitigation actions going into effect in 2026, we expect to offset about 70% of the annualized tariff impact next year or approximately $7.8 million out of the $11 million in tariffs, leaving us again with approximately $3.2 million in unrecovered tariffs. We believe that $3.2 million represents the downside as we see it today. Further reductions in the tariff burden will come over time from sourcing, product reengineering and new product introductions, but those initiatives will take time to fully materialize. Next, let me address currency. While we benefited from the translation of the higher euro to the dollar, we also incurred significant losses on FX contracts in 2025. Year-to-date, these losses, which amount to $1.3 million swing year-over-year flow through and suppressed product margins. We roll off these contracts at the end of 2025. Now let's turn to operating results. Revenue for the quarter was ahead of the prior year by 0.7%. But breaking that number down further, we showed a solid growth of 4% in our full price in-line business and a 37% reduction in sales from discontinued merchandise, again, reflecting a healthier business and stronger quality of revenue. By region and channel, North America wholesale, our largest channel, had a very strong quarter, up 15.6% from the prior year period. North America digital D2C, which represents 13.6% of the region's revenue, was down 16.5% as we continue to pull back on pro channel sales. We also saw some sales pullback from our price increases as we are generally ahead of the market in implementing tariff-impacted prices. Margins, however, lifted 820 basis points, and we were actually ahead of the prior year period on channel contribution margin dollars, reflecting a much improved profitability equation for the channel. In total, North America was up 9.1% versus prior period. Europe wholesale without the impact of FX contracts was up 2.9% in dollars and down 3% on a constant currency basis. Europe digital D2C, which is 5.8% of the region's revenue was down 16% in dollars and 21% in constant currency. Here again, we pulled back on pro sales and discounting, which resulted in a 570 basis point improvement in margin. In Europe, without the impact of FX contracts, the region was down 1.9% in revenue, 4.0% in constant currency. Our international distributor channel was down 28.9%, reflecting the timing shift discussed on our last call, wherein we have realigned our deliveries to better suit the needs of our international markets. We have now fully cycled those 2 shifts from Q1 into Q4 and from Q3 into Q2 and expect normalized comps going forward. Within our business units of apparel, mountain, climb, ski and footwear, we saw breakout growth in apparel and solid sales in mountain, offset somewhat by softness in climb, a strategic pullback in ski and narrowed focus in footwear. The decline is consistent with broader industry trends based on point-of-sales data. I want to call out, in particular, the strong momentum we are seeing in apparel across channels and regions. Apparel was 23% of our mix in Q3, up 490 basis points from a year ago. Total apparel sales were ahead by 29% versus the prior period, with in-line sales up 40.5% and discontinued merchandise down 24%. Margins meanwhile were up 650 basis points for the apparel business unit. Overall, a great story upon which we expect to build. Turning to gross margin. Our results reflect the progress we are making in building a healthier full-price premium brand. Gross margin was ahead of prior year by 320 basis points. Excluding the impact of FX contracts, comparable gross margins were up by 410 basis points. Operating expenses, excluding restructuring and legal costs from both periods, were down 4.6%. Adjusted EBITDA came in at $4.7 million for the quarter, up 9% to prior year period. Inventories ended the quarter in great shape. We were up 2.1% compared to the prior period at $62.8 million, largely due to increases in capitalized duties from higher tariffs. Inventories of discontinued merchandise is down $2.1 million or 25% at quarter end. We are now near our target of having 70% of our inventory against our best-selling A styles. Operationally, we've made great strides in rebalancing our supply chain in response to the current tariff environment and expect to see new country of origin production up and running in 2026 for headlamps, climbing helmets and other categories historically sourced from China. We have also deployed a new state-of-the-art sales and operation planning capability, which is expected to better match supply and demand globally and within each channel. Organizationally, the company is leaner, more focused and more productive. Lastly, I want to give a big shout out to our creative teams. We have elevated the creative expression of the brand through our new website, recently launched catalog and refreshed marketing assets. While our product line exudes that rare alchemy of beautiful design and superior engineering that has always set BD apart. The brand looks better than ever, and our creative just keeps getting stronger, fresh, original, progressive and true to who we are. Looking ahead to the fourth quarter, our outlook is more cautious. Consumer sentiment remains low. Promotional activity seems to be on the rise as the broader market struggles to balance cash and working capital requirements. Macro factors continue to cause uncertainty and disruption. Tariff impacts are not yet fully understood nor manifested. Retailers are taking a conservative stance. And so against this backdrop, we'll continue to simplify, reduce costs and stay laser-focused on the fundamentals of our strategy. In closing, I'd like to thank our teams around the world for their incredible perseverance, creativity and drive in the face of this turbulent often chaotic and certainly unpredictable global environment. With that, I'll turn it back to Mike. Michael J. Yates: Thanks, Neil, and good afternoon, everyone. On today's call, I'll provide a brief comments on the Adventure segment and we'll then conclude with a summary of the third quarter financial results followed by the Q&A session. Let's take a closer look at Adventure. Our team delivered 15.9% year-over-year growth versus the third quarter of last year. Excluding the RockyMounts acquisition, organic growth was 7.4%, which is a solid step forward. Consistent with our strategic focus on expanding our customer base, a strong pipeline filled with a new Rhino-Rack customer in Australia drove much of the growth, which was partially offset by declines in the recovery product line. Adventure's adjusted EBITDA came in at $349,000, which is about $100,000 ahead of last year. Gross margin at Adventure continues to be pressured, mainly due to additional tariffs in the U.S., inventory clearouts and cost of freight to customers. We made price adjustments to the RockyMounts line in the U.S. at the end of the third quarter, which will help offset the tariff impact and protect our gross profit dollars moving forward. In Australia, we haven't done a good job capturing price on an annual basis. The lack of price capture has meaningfully contributed to margin erosion, and we are implementing an updated pricing strategy for ANZ that will be one of our near-term actions to recover profitability. With that said, we do expect gross margin percentages to stay below historical levels as these changes work through our P&L. On a more positive note, we reduced SG&A by $600,000 versus third quarter of last year. That improvement came from the reorganizations we've completed in November of 2024 and July of 2025 as well as tighter control over travel, marketing and event spending. As Warren noted, on an annualized basis, we have taken out $1.1 million of fixed costs from the business from our most recent rightsizing actions. Under the new leadership of Trip Wyckoff, there's a renewed focus on executing the next phase of the Adventure growth strategy. As detailed in prior calls, we've previously identified investment opportunities to expand Adventure's global presence. While making these investments, we have experienced declining sales and profitability trends. We are not abandoning these initiatives. However, as we balance growth objectives and operational improvements, our focus is on serving our existing customer base with better products and more fitments that should drive improved profitability. The past few months have been about getting clear on our challenges and resetting our direction, both in the short term and on the longer-term horizon. We're focused on getting leaner, more efficient and setting ourselves up to grow the right way. In August, we opened our 3PL warehouse in the Netherlands. We started conservatively with the inventory position, and we anticipate new customer orders shipping from the facility in the fourth quarter of this year. The new facility helps us serve customers more effectively in the Nordic, U.K. and European markets, and it opened doors with smaller and midsized accounts that previously couldn't import full containers from Australia. This is exactly the kind of strategic growth we want to see. On the U.S. tariff front, while the added costs are a headwind, we've determined it still makes sense to maintain production in Australia and China for now. About 75% of our total volume isn't impacted by these tariffs. So it wouldn't make sense to increase FOB costs across the board just to avoid tariffs on a smaller portion of our sales. We're constantly challenging our supply chain to move production when it's financially sound to do so. In the meantime, we've invested in sourcing some high-volume MAXTRAX traction board production in Salt Lake City, a big step towards greater control and reliance. Our Asian supply partners have also stepped up, helping offset some tariff costs with unit price reductions. We'll be adjusting Rhino-Rack pricing in the U.S. on December 1 to stay ahead of further pressure. Right now, we're in the high season of our core Australian market, and we're seeing healthy early spring sell-through. For the rest of the year, our priorities are clear: drive profitable top line growth while keeping SG&A and personnel expenses tightly managed. Looking ahead, our biggest opportunity lies in product innovation. This has been an underperforming area for a few years, and it's where we're focusing our energy. We're adding resources, expanding our vehicle fit team to move faster and bringing in experienced product developers with deep category knowledge. We've built a 3-year innovation road map that we're confident will disrupt multiple product categories and help us maintain leadership in the Australian market while breaking through with share gains in the Americas and rest of world. This has been a challenging year for Adventure. There's no doubt about that, but it's also been a pivotal one. We face the hard truths, we're taking meaningful actions, and we're positioning the Adventure business for a much stronger, more innovative future. So with that, now let me turn to the consolidated and segment financial review on Slide 8. Third quarter sales were $69.3 million compared to $67.1 million in the prior year third quarter. The 3% increase in total sales was driven by the increase in the Adventure segment of 16% and a decrease in the Outdoor segment of 1%. However, as Neil noted, Outdoor revenue was actually up 1% when you exclude PIEPS from both periods. The consolidated gross margin rate in the third quarter was 35.1% compared to 35% in the prior year quarter. Gross margin was impacted by higher sales volumes at Adventure and a favorable product mix at Outdoor. These increases were partially offset by an unfavorable product mix within Adventure, primarily driven by higher RockyMounts sales in North America, U.S. imposed tariffs impacting both segments and lower volumes at Outdoor after the sale of PIEPS in July along with the headwinds caused by losses on the foreign exchange contracts at Outdoor. Adjusted gross margin was 35.1% for the quarter compared to 37.8% in the year ago quarter. We did not adjust gross margin in the third quarter of 2025, but I want to note that actual gross margins include significant headwinds from tariff and FX, a couple of items that have been outside of our control. The significant efforts at Outdoor under Neil's leadership to improve gross margins are being realized, but were partially offset by the tariffs and FX this quarter. Gross margin at Outdoor was 36.0% for the third quarter of 2025 compared to 33.2% in the prior year. This performance is outstanding and is exactly what we were expecting to see prior to tariffs and the change in the euro rate. The results at Adventure are much more challenging due to the gross margin headwinds I just discussed. Adventure's gross margin was 33.2% for the third quarter of 2025 compared to 40.1% in the prior year. Now on to SG&A. Third quarter SG&A expenses were $26.2 million compared to $27.9 million or down 6% versus the same year ago quarter. The decrease was primarily due to lower employee-related costs, lower costs from PIEPS due to the divestiture and other expense reduction initiatives to manage costs across the segments and at corporate. Adjusted EBITDA in the third quarter was $2.8 million or an adjusted EBITDA margin of 4.0%. Our adjusted EBITDA is adjusted for restructuring charges, transaction costs, stock compensation expenses, contingent consideration benefits and other inventory reserves. Additionally, as noted in prior quarters, beginning in the first quarter of 2024, we adjusted legal costs associated with the Section 16(b) litigation and the Consumer Product Safety Commission DOJ matter known as the CPSC and DOJ matters. These legal costs were $1.0 million in the third quarter of 2025 and $3.5 million in total for the first 9 months of 2025. The third quarter adjusted EBITDA by segment was $349,000 at Adventure and $4.7 million at Outdoor. Adjusted corporate costs were $2.3 million in the third quarter. Let me shift over to talk about liquidity and the balance sheet. Free cash flow defined as net cash provided by operating activities less capital expenditures for the third quarter of 2025 was a use of cash of $7.0 million. This compares to a use of cash of $9.4 million for the 3 months ended September 30, 2024. Total debt on September 30, 2025, was $2 million. As a reminder, this debt is related to an obligation associated with the RockyMounts acquisition and will be paid in December of 2025. We have no other third-party debt outstanding. At September 30, 2025, cash and cash equivalents were $29.5 million compared to $45.4 million at December 31, 2024. We used $7 million of free cash flow in the third quarter. In early July, we closed on the sale of the PIEPS snow safety brand and realized the cash proceeds from the sale of the brand. I do expect the business to generate free cash flow during the fourth quarter consistent with our historical performance, and I expect our consolidated cash balance to be in the range of $35 million to $40 million by the end of the year. Let me spend now a brief moment on guidance. Regarding our full year outlook, we have again elected to provide -- to not provide 2025 guidance consistent with our position over the last few quarters. While we believe we have handled on the tariffs with effective countermeasures in place, ongoing uncertainty related to trade, consumer sentiment and the overall macroeconomic environment make it really difficult to confidently forecast the business. And currently, based on what we know about our order book and tariffs, we are satisfied that our actions to date are consistent with market conditions. However, due to the ongoing uncertainty, we believe it's best to remain cautious and continue to not provide guidance. In addition to my comments about our cash balance, our business historically has been seasonal with a 45%, 55% revenue split between the first half and second half of the year, and I believe we will continue to see that in the second half of 2025. Finally, I will add that revenue for the month of October exceeded our forecast for both segments. Let me move on to Legal. I'd like to provide an update on the outstanding Section 16(b) securities litigation matters that the company is pursuing as well as an update on the open matter with the CPSC and the Department of Justice. We continue to proceed in our lawsuit against HAP Trading, LLC and Mr. Harsh A. Padia. In early 2025, the court granted summary judgment in favor of the defendants. We subsequently filed a notice of appeal and are opening appellate brief. HAP has filed its opposition brief and our replied brief will be filed this Friday, November 7. Oral arguments will likely be scheduled in the first quarter of 2026. We also filed a lawsuit against Caption Management and its related entities and controlling persons. The defendants filed a motion to dismiss, which was denied. The case is in discovery phase with documents having been exchanged and depositions likely to be held during the first quarter of next year. In the meantime, a mediation is scheduled for November 25, 2025. With respect to the open matters with the CPSC and DOJ, in late 2024, the company was notified by the CPSC that the unresolved matter involving Black Diamond had been referred to the Department of Justice. In early 2025, the DOJ served the company and Black Diamond with grand jury subpoenas requesting various categories of documents related to Black Diamond's avalanche beacons. We are cooperating with the DOJ in responding to its discovery requests and have produced substantially all the documents requested. Additionally, in early 2025, the company received a letter from the CPSC requesting various categories of documents and information in connection with a new investigation into whether BDEL sold products that were subject to a recall. The company has cooperated with the investigation, responding in full to the CPSC's document request and has heard nothing further. In conclusion, turning back to our 2 core segments, we believe the actions we've taken to prioritize our best customers and our most profitable outdoor products and styles, together with a simplified organizational structure with an emphasis on product and fitment and adventure position Clarus for long-term success. Supported by a balance sheet with 0 third-party bank debt, we are committed to taking a prudent approach to capital allocation and managing our business to drive long-term market share gains while delivering sustainable value for our shareholders. At this point, operator, we're ready to take questions. Operator: [Operator Instructions] Your first question comes from the line of Laurent Vasilescu with BNP Paribas. William Dossett: This is William Dossett on for Laurent. So my first question was just parsing out the Outdoor segment sales, they were flat in the quarter, but Black Diamond apparel was up 29%. And so can you just parse out what was the offset to the Black Diamond strength? Michael J. Yates: Well, I'll let Neil expand too, but this -- PIEPS was essentially 0 in the quarter. So that's a year-over-year a headwind. The real challenge, and I think Neil covered in his remarks, was the D2C business. The North American D2C business was down 16.5% and the European D2C business was also down 16%. So the short answer is no PIEPS, D2C was weak across the globe and that offset the North American wholesale strength. And the apparel business is part of the North American wholesale, that's where we capture that as part of the wholesale business. William Dossett: Okay. I appreciate that. And congrats on the success of Black Diamond. And my other question would be on just how your retail partners are ordering for the spring of 2026 in the Outdoor segment. How much more conservative are they going to be in this backdrop? And as well while we're looking forward, just wanted to get any thoughts that you had on the holiday this year. I appreciate it. Michael J. Yates: Well, I would I can start with that. I think the holiday is always kind of a little bit of an unknown, right? The coming net... Warren Kanders: Mike, why don't you let Neil answer that question? Michael J. Yates: Yes, sure. McNeil Fiske: Yes. Let me -- on the first question, William, regarding spring, our order books look pretty good for spring and certainly reflects some caution on the part of our retail partners. But we -- our order book is up. And of course, ultimately, it comes down to how much of that sticks. But I think the indications are quite positive. And we feel like we have really good momentum in the wholesale channel, both with our big national accounts, REI and MEC as well as Amazon and real strength in specialty. So I think looking ahead to spring, we feel as good as we can in this environment about the strength of the wholesale channel. And so that's part one. Regarding the fourth quarter, I think that we're just cautious. And as Mike said, it's too early to tell. We do see the environment being more promotional. We see retailers being cautious and not wanting to take on too much inventory. But I would say 90% of the game is still to be played in the fourth quarter. So we're cautious. I think it's prudent to be cautious in this environment, but it's really hard to find a trend line at this point for Q4. Operator: [Operator Instructions] There are no further questions at this time. I will now turn the call back over to Mike Yates for closing remarks. Michael J. Yates: Okay. Great. Thank you very much. I want to thank everyone for attending the call this afternoon, and your continued support and interest in Clarus. We look forward to updating you on our results again next quarter. Thank you. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect. Everyone, have a great day. Bye.
Carolina Stromlid: Good morning and a warm welcome to the presentation of RaySearch Q3 2025 Results. My name is Carolina Stromlid and I'm new Head of Investor Relations at RaySearch. With me today are our Founder and CEO, Johan Lof; and our CFO, Nina Gronberg, who will take you through the highlights and financials of the quarter. After the presentation, we will open up for questions. So feel free to submit them in the chat or ask them live. With that, let's kick off today's presentation. Johan Löf: Thank you, Carolina, and welcome again, everyone. Before we go through the Q3 results and highlights, I'd like to give a brief overview of RaySearch and our business. So as you know, RaySearch is a pure software company and we develop software for cancer treatments. We have 4 platforms: RayStation, which is our treatment planning system; RayCare, which is the oncology information system; RayIntelligence is our analytics tool for exploring population data; and RayCommand is the treatment control system. So if you look at the comprehensive cancer center. We have usually the radiotherapy treatment in the basement, you see the treatment machines down there. In the comprehensive cancer center, we also perform surgery for cancer and we deliver chemotherapy and other systemic therapies. So comprehensive cancer center can deliver all the types of treatments that are available for cancer. And RaySearch has so far during our first 25 years been mainly focused on radiotherapy or I would say only focused on radiotherapy. So we do the treatment planning for radiotherapy and also with RayCare, we manage the workflows, et cetera, for delivering radiotherapy. We have recently added a new function in RayStation for liver ablation planning and delivery. So there is a room in this clinic picture where you see liver ablation to the far right. And this is the first time we actually go outside of radiotherapy because liver ablation is interventional radiology. And going forward, we will take care also of the other aspects of cancer treatment. Next year we are entering into chemotherapy where we add chemotherapy planning into RayStation and chemotherapy management into RayCare and further down the line, we will also support surgery in the same way. So our long-term goal and vision is to provide the comprehensive cancer center with all the tools necessary to do whatever goes on in a center like that. So we will support comprehensive cancer care. Many patients receive a combination of treatments. Breast for example, you usually first perform surgery to remove the tumor or the breast and then you irradiate lymph nodes and after that you deliver chemotherapy. So many patients have had a combined treatment like that and I would say there's hardly any software support for that situation. So we want to be able to cooptimize and coordinate such treatments in the future. This slide shows the long-term development for RaySearch in terms of revenues. We go all the way back to 2008. I show this slide because I want to emphasize the importance of looking at RaySearch long term because as I have repeatedly stated over several years is that our quarters fluctuate in terms of revenues. That has been quite common for a long time even though maybe we see a little bit less of that than in the past, but it's still a characteristic of RaySearch because there are some big deals that have fallen on either side into one quarter or another quarter. So it is important to look at RaySearch over a longer period. And if you look at this slide, you see that it's a pretty stable growth over the years. The magenta colored bars are the support revenues so they are steadily increasing and they are now about 39%, 40% of the total revenues. There is a dip that you see in 2020 and 2021 that were of course during the COVID years where we were quite badly affected. But overall, over a longer period, we can see that there is a steady growth. So even if we had a somewhat weaker Q2 this year, Q1 and Q3 are record quarters in terms of revenues. We have all-time high this quarter, but Q1 was very close as well. So basically we have 2 all-time high quarters this year so far and 1 a little bit weaker. So I just want to remind everyone that one has to have a longer-term perspective on RaySearch development. Okay. So now over to the latest developments. So I'm happy to report that Q3 was a strong quarter for RaySearch with record high net sales and improved profitability. I think Q3 demonstrates the strength of our business model and the importance of maintaining this long-term perspective. While revenues can fluctuate between quarters, this quarter confirms the company's continued solid performance. We saw continued strong interest for our solutions in the quarter supported by the deliveries to 6 major particle centers in Asia. Net sales grew by 13% to SEK 332 million reaching the highest revenue we have ever recorded. The increase in net sales lifted operating profit by 44% to SEK 89 million with an EBIT margin of 27%. Adjusting for costs from our global employee conference, EBIT was SEK 103 million corresponding to a margin of 31%. Recurring support revenue continued to grow reaching SEK 130 million in Q3 and which represents 39% of total revenues. So let's move on to the operational highlights of the quarter. Overall, customer activity remained strong with order intake increasing by 70%. Many of our existing customers expanded their installations during the quarter to add more systems and functionality. Roughly half of our license sales continued to come from the installed customer base demonstrating steady demand from the existing customers. Interest in RaySearch solutions remain high across all regions with an increasing number of clinics choosing RayStation and RayCare over other systems. I can mention a few notable examples in Q3. Stanford Healthcare in the U.S. placed a new order for advanced proton therapy. [ AKMS ] Oncology selected RayCare and RayStation for its new cancer center in California. Keimyung University Dongsan Medical Center in South Korea will install RayStation and RayCare at its new proton center. RayStation has been installed at 3 new proton centers and 2 carbon ion therapy centers in China. Auckland City Hospital in New Zealand is expanding its radiotherapy capacity with additional RayStation licenses. The replacement of Philips treatment planning system Pinnacle, which will be discontinued by 2027, continued in the quarter. The German health provider Med360 will deploy RayStation across 10 clinics for Elekta and Accuray treatment machines. And in France, several clinics will replace both Pinnacle and Eclipse with RayStation. Another example of customer activity was the annual ASTRO conference that took place in San Francisco at the end of September. This is a very important event for us and we had a great interest in our offering. Finally, in September, we celebrated an important milestone. RaySearch marked 25 years as a company. For the first time since the pandemic, we gathered all our employees from around the world with an internal conference. This created valuable opportunities for knowledge sharing while also strengthening our company culture and engagement. Together, we will continue to build on this, improving cancer treatments for patients worldwide. In September, we launched a new version of RayIntelligence, which is our oncology analytics platform. It's cloud-based and we have built it with modern technology for scalability and accessibility. It comes with interactive dashboards that you can use to visualize data and understand correlations, et cetera. It's seamlessly integrated with RayStation and RayCare meaning that it listens to everything that goes on in these systems. So without the user having to do anything, RayIntelligence will capture the information that's being generated in RayStation and RayCare. There is also a very powerful SQL scripting interface for customer queries and in-depth data exploration. Some examples of use cases for RayIntelligence is that you can get an overview of the clinical operation. You can get an overview of everything that goes on in your department. You can monitor machines, treatments, toxicities. You can also track treatment quality and look at your population of patients over time, what are the side effects and what are the tumor control probabilities, et cetera. In our systems, we have several machine learning or AI models in certain algorithms and RayIntelligence can also be used to monitor the performance of these machine learning models. RayIntelligence is also a very powerful tool to generate reports that takes data from RayStation, RayCare, but also external sources. This is an example of a dashboard where you follow the treatment planning in a specific clinic. So you can track it over time. You see the time axis in 1 diagram there. You can track it on tumor type so how many plans did we create for breast, how many for prostate, for lung, et cetera. There is also statistics here for the different treatment planners. So how many -- I mean which person did the most plans and who did the least, et cetera. So this is just an example of things that you can see and visualize with RayIntelligence. It's also important to note that although RayIntelligence comes with a large number of predefined dashboards that we have made, the user can have tools in RayIntelligence to create their own dashboards. So it's a very powerful addition and complement to RayStation and RayCare. So in the next slide, we try to visualize how RayIntelligence can be used to gather data. RayWorld, the combination of all our systems are called RayWorld, and we want RayWorld to be a learning system. So what this slide illustrates is that those little squares or rectangles are data points that are being automatically at the back end captured by RayIntelligence from RayCare and RayStation and that data is put in the cloud, in the data warehouse in the cloud. It can be a cloud on-premises, but it can also be a cloud in the cloud, so to speak. Based on this data, we achieve clinical insights. We feed back information. Those networks, neural network symbol there, represents machine learning models going back to our systems, but there are also other data points represented by those dots that are insights that we feed back to improve our algorithms. So we have several algorithms as we rely on historical data like deep learning segmentation and deep learning planning. So that is to improve the performance of, for example, RayStation. We can also improve the operational efficiency of the clinic. So RayIntelligence will help determine bottlenecks in the workflow and then you can take action to remove those bottlenecks. We also want to provide clinical decision support by following the patients over time and knowing exactly what we did to these patients and what the preconditions were. We can improve and we can give recommendations to the clinical teams on how to treat the next patient. And combined, all of this will then improve outcomes and treatment outcomes for our patients. So with that, I would like to hand over to Nina to tell us about the financial development. Nina Grönberg: Thank you, Johan. In quarter 3, we saw continued high activity in the market both from new and existing customers and across the regions. Order intake increased by 17%, which brought the rolling 12 curve upward again, up from the smaller drop that we had in the last quarter. And we had high order intake from support contracts in the period. The order backlog ending at SEK 1.617 billion was also affected by that we had 6 Asian particle sales turning into net sales in the third quarter. High net sales gave us a book-to-bill ratio in the quarter of 0.9 and for the last 12 months it was 1. Despite headwind from the strengthening of the Swedish krona, net sales grew with 13% in the quarter and since the SEK 332 million outcome beat the previous record that we had from quarter 1 this year if only with SEK 0.5 million, we did mark out a new record level. License sales growth was 40% and support sales grew with 8%. The organic growth was 19% mainly coming from new orders, but also from the already mentioned particle sales in Asia, sales that was previously recognized in our order backlog. The high net sales drove EBIT up with 44% to SEK 89 million in the quarter and strengthened the margin to 27%. If we adjust for the costs that we had from our internal conference and a very small currency effect in the quarter, EBIT was SEK 103 million and the EBIT margin 31%. Year-to-date net sales was up 11% and 15% organic-wise. And the year-to-date EBIT margin was 21%. Moving on to the rolling 12 development of net sales and EBIT and also the perspective that we believe give a better and more relevant description of RaySearch business performance. We see that net sales for the last 12 months amounted to SEK 1.292 billion and that gave us an annual growth rate of 14% over the last 2 years. And the rolling 12 EBIT of SEK 274 million means a solid margin of 21% and this, I want to point out, is despite that we've had large effects from nonrecurring costs and currency losses during 2025. Recurring revenue from the support contracts was, as mentioned, up 8% amounting to SEK 130 million in the quarter and corresponding to 39% of total net sales. Year-to-date the support contract growth was 13% and amounting to SEK 385 million and that corresponds to 40% of the total net sales. Rolling 12 development pictured with the blue line in this graph show the steady increase that we have in our support revenue over time. Moving on to the cash flow development. Cash flow in quarter 3 was minus SEK 82 million and strongly impacted by the higher working capital. Though this is not a satisfying outcome, I want to break it down for you and I want to point out that the picture is brighter than it first looked like. There is mainly 3 things that has impacted working capital in the quarter. One of them being the already mentioned Asian sales, which were to large extent prepaid, and that is a good thing. I mean we get paid before we deliver anything and that is something that is common when it comes to our sales in the APAC region. But it also means that no cash flow is generated later on when the sales is recognized. Secondly, we have sales with longer payment terms. In some cases, these longer payment terms is related to tenders and framework agreements and that is something that gives us good and profitable sales, but where we have to accept that we get paid a little bit later. For example, in the last 2 quarters, we had strong sales in the French market and there we have these kinds of contracts. And then we get a smaller portion of the payment when we deliver, but we also have to wait with the invoicing until customer has finalized their testing. In other cases, we have accepted longer payment terms or later invoicing since we can benefit from it in terms of price or in terms of long-term value from the customer relations. And third, a portion of the cash flow outcome is always related to timing of the sales in relation to quarter end, a timing that was not in our favor in the third quarter. Cash flow was also affected by quarter 3 being summer months, which means vacation payouts. Last, but not least, I want to remind you that we have a cash balance of SEK 323 million when we exit the quarter. We have no loans and on top of that, a nonused overdraft facility. Breaking it down further to you and looking at the 3 items in our balance sheet building up the main part of the working capital; the contract assets and the contract liabilities, which is receivables and liabilities we have towards our customers. Here we have been used to having a net that is negative and that means that we have more prepayments from our customers meaning they pay us before delivery than the customers owe us because we have delivered and not get paid. And that is an extremely good position I must say. And now in September, it turned the other way around, but as I see it, we're still in a rather good shape. And as with net sales, we will have fluctuations in these items as well going forward depending on the mix of the customer contracts. And we will of course continue optimizing the working capital in relation to the business. And with that, I hand over to you, Johan, that will give a summary of the quarter. Johan Löf: Thank you, Nina. All right. To summarize the quarter, we achieved record high net sales. Our profitability improved significantly. We continue to see increasing interest in our solutions. There is still a very large potential within our existing customer base giving us the opportunity to sell additional systems as well as additional modules to them. With our leadership in innovation, strong partnership and an expanding and loyal customer base, RaySearch is very well positioned for long-term growth. So we will now open up for questions and I will hand over the word to Carolina. Carolina Stromlid: We will start with questions from our analysts and the first question comes from Mattias Vadsten at SEB. Mattias Vadsten: I think I will start with 3 questions. I think first one, as has been discussed in this case before and in conference calls, the upselling potential is quite massive as it looks and this effect, if I do my calculations, has been quite sort of substantial both over time, but also in particular I would say in 2024 and into 2025. So if you could just confirm this is the case? And also if it is something special happening driving this recent mix? And yes, how the sort of setup looks there going into the future here and into 2026, '27? That's the first question. Johan Löf: Okay. Let's take them one by one, please. Then you can ask the second if you may. Also this quarter, we had about 50% of the license sales from the installed base and the other half from new customers. So this seems quite constant. It's just a behavior of our customers. We have a campaign that we're starting in just a couple of regions where we allow customers to use the systems. We unlock all of RayStation's functionality for a limited period of time and have the customers try out everything that -- all the modules that you can buy in RayStation. They are also free to use that clinically. And after this trial period, which we are experimenting with, but it's about 6 months; they have to decide whether they want to buy it or not because the modules are shut down after that trial period. And it has been very well received in the markets that we have initiated it. We want to do it on a small scale to start with in these countries just to gain experience and then based on that experience, we will open it up to other markets. But we believe that that should benefit the sales to our installed base. Did that answer your question? Mattias Vadsten: Yes. When was this initiative started just as a follow-up? Johan Löf: I didn't hear what you said. Carolina Stromlid: Did you have another question? Mattias Vadsten: Yes. First, a follow-up to this question I asked just now. When was this initiative started? Johan Löf: The letter was sent out maybe 2 months ago, something like that. I don't remember exactly, but it's quite recent. Mattias Vadsten: Okay. Good. Next question is I think you point out, also very well in the presentation, a strong delivery quarter in terms of licenses this time, also new customers sales exceeding orders last 12 months in this line and order backlog, therefore, falling vis-a-vis last year and previous quarter for licenses specifically. So just how you view this and sort of how to think about the future with regards to this? That's the second question. Johan Löf: Okay. The reduction of the order backlog was a direct consequence of those deliveries. But as you may have noted, the order backlog and the order intake for 1 quarter is a very bad predictor for the revenues for the next quarter or future quarters because most of the order intake is still -- or most of the revenues are still RayStation revenues. And most of those, except for the special particle centers, et cetera, most of that order intake is directly converted into revenues. So let's say that we have a strong Q4 quarter, then it would be strong both in terms of order intake and revenues. So that's just the nature of the business. Carolina Stromlid: Do you have any other question, Mattias? Mattias Vadsten: Yes. I have 1 final question, then I will allow other analysts. Carolina Stromlid: We will move over to Kristofer Liljeberg at DNB Carnegie. Kristofer Liljeberg-Svensson: It's Kristofer, I think you have some problem in tech. Carolina Stromlid: We'll try with Oscar Bergman from Redeye. We can come back to the phone questions again and move over to questions posted in the chat. Johan Löf: Okay. I can start with those. Lots of different questions here. There's 1 question. Could you give some color on the share of previous Pinnacle clinics accounting for the license sales in the quarter? Yes. About half of the new license sales to new customers were by converting Pinnacle clinics to RayStation and the other half was converting other systems and that will be then Monaco and Eclipse. This was posted by [ Daniel ]. And he also asks, could you elaborate on the revenue model of RayCare? Is it similar to RayStation in terms of license fee plus support revenue? That was the first question. And yes, it is, but it is a bit higher. So you can assume about 30% higher for a certain clinic, but it's of a certain size. And the RayCare installation would be about 25%, 30% more expensive than the RayStation installation. And then the second question and is how is pricing determined? Is it based on patient throughput and users? It's mainly based on patient volume or patient throughput as is stated here and connections to machines. So the more machines linacs you have, the more expensive RayCare becomes and also how many patients you want to treat with RayCare, that also affects the price. So that's the difference between RayStation, which is mainly based on the number of users. A question from another person here [indiscernible]. Could you come back on Philips discontinuation? How well are you positioned to benefit from this? Is it already visible in your order intake or should we wait until 2027? So I would say that we are very well positioned and we are focusing very hard to convert the remaining connected sites. And it's been visible, I would say, so we don't have to wait till 2027. This has been visible for a few years actually. But it's intensifying now as the clinics cannot wait until 2027. They have to work well before the New Year's Eve of 2026 so they cannot have an interruption. Oscar Bergman has asked several questions so I will go through those. Can we check that they can ask questions? For example, Kristofer has reached out. Carolina Stromlid: No. We seem to have some kind of technical issue so I think it's better to take them written. Yes, it's posted in the chat. Johan Löf: Great. So the first question from Oscar Bergman. The EBIT margin was at 27% and 31% adjusted is above your target that I had previously argued is quite conservative. Are you looking to increase your EBIT margin target now as you have done before when you have exceeded the target? Okay. I agree that it looks quite promising that we will achieve at least an EBIT margin of 25% in 2026 given the current performance. We haven't changed that. Clearly we let it stay as it is, but we will communicate new targets later on, but then that will be communicated in conjunction with the press release or report. But for now we will stick to the at least 25% EBIT margin target and we feel quite confident that we will be able to fulfill that target. Second question is end-of-life Pinnacle. Can you elaborate a bit more on the sales funnel here, specifically your market share of winning these accounts? And also what is a more realistic timeline for these centers to have finalized that transition or should we assume that some centers will still be doing this in December of next year? As I said earlier, I think they will do this well before December next year because there are few months of preparation, et cetera, when you move from 1 system to another before you can start to treat patients. I think we are well positioned. It's very hard to know exactly our share, but I think we have more than 50% of these accounts I think that we win. Number three, I understand a lot of resources are going to getting these Pinnacle clinics. Once that window is closed, how quickly can you shift going after non-Pinnacle clinics. Is there any risk of a temporary slowdown after the Pinnacle opportunity? And as I also stated before, 50% of the new sales are other sites and they are a conversion of Eclipse and Monaco. So that is already running and it varies between different markets. For example in Japan, this Pinnacle conversion has pretty much already happened there. All the new license sales are from converting other systems in Pinnacle. So yes, I don't think there will be a temporary slowdown. We are already converting at a pretty -- converting other systems at a good pace. Number four, a 96% gross margin, about 4 percentage points above the average that we had for many years. Were there any one-offs or something like that that gave this strong margin? Yes, there were 2 things that happened. There were less computers being sold through us. We do offer our customers to provide them with servers and hardware necessary to run our products and we have a decent margin on that as well. But since less of those this time in this particular quarter that helped because it's obviously a lower margin on the servers and the software. The other thing was that the deliveries to the particle centers in Asia didn't come with hardware at this point. So that also helped. So I think that's probably an unusually high gross margin. We can't expect that every quarter going forward.. Number five, the final question here. In Q2, you had received 4 new RayCare orders year-to-date and you mentioned that you expect 4 or 5 more during the second half of 2025. Can you give some update on this is the question? We achieved another 2 orders this quarter for RayCare and we will see what happens during the rest of the year. What we can say about RayCare right now is that the interest has intensified greatly and I think we'll see good orders during 2026 for RayCare. Let's see here. [ Carlos Murrian ]. When will RayCare really start to be material to license sales? Is 2025 proving demand for the product? Okay. I guess I just sort of answered that. RayCare when it really start to be material, we have to look 2, 3 years out. But then it will be I think a large revenue contributor. Okay. There is another comment here is that there is problem with the sound. They can hear analysts, but not us, which is a bit unfortunate. I have a question here from Kristofer Liljeberg. It seems it doesn't work to ask questions on the line so here are the ones from me. Number one, will you be able to track how customers are using RayStation modules during the campaign? The answer is yes. Do you expect working capital to come down again or continue to increase? Nina Grönberg: Yes, that's for me. As I also said during the presentation, it will fluctuate also going forward. But of course I see that the items that we have on the receivable side in the working capital, some of them or a big portion of them will get paid during quarter 4 and quarter 1 next year. But I mean the working capital will also be dependent on the deals or the sales that we do later on here in quarter 4. And right now I don't know how those agreements will look like. So I have no clear answer to that. It will be better I can say. Johan Löf: Kristofer's third question is high gross margin from lower hardware sales. Is it temporary or can it be start of a new trend? As I explained before, I think it's temporary. Number four, how do you view deal flow in Q4? In general, we have good momentum can answer to that. Number five, Seems on track to reach EBIT margin target for next year. How do you view investment needs after that? Okay. Number five, I think we will revise our EBIT margin targets up for the future without quantifying that. But we will reach we hope and we are quite confident that we reach the current EBIT margin target. Before that, we're going to define a new EBIT margin target maybe 3 years out. And in general, we believe that this business will be very profitable going forward. Those were all of Kristofer's questions. I can take 1 more question here. How is RayCare integration progressing with other Varian hardware? When could it be expected an integration of Halcyon? And are you working with other vendors such as Hitachi and United Imaging? That's a good question. We are having discussions with Varian on integrating RayCare also with Halcyon. It's hard to say exactly when that will be clinically available. It will be a couple of years from now, but we have very constructive and fruitful discussions with Varian on this. And then the second part of the question was are you working with other vendors such as Hitachi and United Imaging? We work with many other vendors not United Imaging, but we work with Hitachi on both their OXRAY machine and the proton machine. OXRAY is ordinary linac. They have PROBEAT, which is a proton machine. We work with LEO Cancer Care, we work with IntelliRay, we work with Accuray, we work with [indiscernible], we work with Panacea, we work with [indiscernible]. I don't know if we have mentioned LEO Cancer Care. So we are working. Within the next 12 months, there will be quite a large number of additional interoperability interfaces for new machines for RayCare and within 18 months, there will be even more. So this is progressing very well. I take 1 more question. Are there any discussions with Elekta regarding integration of RayCare? We talk to Elekta from time to time about this and we would very much like to integrate RayCare with their machines. But I cannot say anything more on that currently. Carolina Stromlid: And that concludes today's Q&A. A recording of this presentation will be available shortly on our investor website. And if you have any additional questions, you're very welcome to reach out to us. Thank you for joining us today and we look forward to seeing you again on February 12 for our year-end results. Have a great Friday. Johan Löf: Thank you. Nina Grönberg: Thank you.
Operator: Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Unipol Consolidated Results at September 30, 2025 Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Matteo Laterza, CEO of Unipol. Please go ahead, sir. Matteo Laterza: Good morning to everyone. Thank you for participating to this call. As you have seen this morning, we reported a net profit of EUR 1.12 billion in the first 9 months of the year. Let me say, first of all, that this number incorporate the exceptional contribution coming from the exchange tender offer launched by BPER Banca and Banca Popolare di Sondrio. In particular, there was a positive impact of EUR 240 million gross of tax and EUR 150 million net. On the negative side, in the third quarter, we charged our numbers with a provision of almost EUR 80 million for the revision of the early retirement incentive fund for our employees. Before opening the floor to the question, let me say something on how the business has performed in the quarter. In P&C, we had a very solid trend in the top line, as usual, driven by health business and bancassurance distribution channel. Concerning the technical profitability, the motor business is completely on track compared to our target of the industrial plan, both in terms of average premium, claim frequency and average cost of claim. In non-motor, we decided to be very conservative in our reserving policy, mainly regarding the treatment of nat cat in the quarter. In life, we had a very solid growth in the top line, driven both by the agents and bancassurance. As you have seen in the presentation, we succeeded to increase quite consistently the yield of the assets under management by almost 12 basis points by rebating almost 8 to the policyholder and keeping 4 basis points to remunerate our capital. And this is good part, explain the improvement of the profitability of the life business. Finance department did a very good job, not only in life, but also in non-life. And they gave a substantial contribution to the overall numbers. And finally, concerning solvency, we had a small reduction of a couple of basis points, where the organic capital generation was more than offset by some change in noneconomic variance and in the SCR calculation almost regarding the banking business. Having said that, I am here with Enrico San Pietro, and we are ready to answer to your question. Operator: [Operator Instructions] The first question is from Tommaso Nieddu of Kepler Cheuvreux. Tommaso Nieddu: The first one is a question on the combined ratio and more specifically on the expense ratio, which still looks quite high and maybe overshadows a bit the very good attritional trends. So maybe if you could walk us through what's behind the higher expense ratio, especially I remember first half, you were talking about the agency remuneration mechanism or if this time is also for the early retirement you were talking about? And then if this high expense ratio is something structural or just temporary. And on the positive side, still on the combined ratio, the attritional losses were again very strong this quarter, maybe even stronger than the first 2 quarters. So what's driving that improvement? Is it mainly mix pricing or something more structural in claims management? The second question is on the investment portfolio. I noticed that the cash now represents only 1.5% of total investments. So could you help us understand whether you are comfortable with such a low cash position and if you see room to rebuild some liquidity going forward? And on the broader asset mix, if you can give us a sense of how it split the illiquid part of the portfolio, maybe more specifically the alternative and how it's performing in terms of yield and contribution? And just the last one is on Solvency II, which ended a bit lower, in particular, the insurance group at 265%. So could you elaborate a little bit on what drove the decline? Was it for the banking -- the new banking perimeter or market-related factors? Matteo Laterza: Thank you to you. I will answer to all the questions. I will leave Enrico to elaborate on what you said on the expense ratio. First of all, on the expense ratio, the early retirement provision is not in the expense ratio is in the other income and cost. And so it is not considered in the expense. Then Enrico will elaborate more on that. Concerning the investment portfolio, yes, we reduced the investment in cash, but we are very comfortable on that, consider that we have more than a couple of billion euros of securities whose time to maturity is less than 1 year. And the component of very liquid asset is very consistent. So for us, the investment that we allocate in cash depends on the cash flow analysis that we had going forward in consideration to the very important payment that you have to say like payment of taxes or payment of dividend. And at this time, this percentage -- with this percentage, we are all set. Concerning the alternative asset, we have, as you have seen in the asset allocation investment in alternative assets. They are almost investment in the real asset component. There is a part allocated in private equity. We don't have private credit in our investment scope since the beginning because in our elaboration in setting up the strategic asset allocation, we did not -- we never consider this asset class as a possible target of investment because the risk reward profile of this asset class was not enough to remunerate our need of capital. In other words, the expected yield on this kind of asset class was not worth to remunerate the capital absorption coming from the investment in this kind of investment. Finally, concerning the solvency, let me say more on that. We had reduction for the group from 222% to 220%. And let me explain the bridge from 222% to 220%. We have lost a couple of percentage points in terms of model change. We generated capital for 6 percentage points. We had 2 percentage points of positive economic variance as a consequence of the positive performance of financial market. And then we deducted 3 percentage points as noneconomic variance. That means that there were some items that was not performing in line with our expectation in terms of budget assumption and plan. In particular, considering the surrender rate that was way below the market, but a little bit higher compared to our assumption. We had 3 percentage points less in terms of capital movement because we have to consider the part of organic capital generation that we pay as expected dividend. And finally, we have lost 3 percentage points in terms of SCR change, part due to the insurance perimeter and part to the increase of the risk in the banking business. And it is the update of the risk of the banks from the 31st of March to the 30th of June. And this explains the 2 percentage points that we have lost in the group. Then you have asked also why the insurance group have lost more, and we are at 265%. And the answer is it's quite easy. The rule that we have to follow and calculate the solvency in some cases, are, in some extent, stupid in the sense that we had in the past, a 20% stake in Banca Popolare di Sondrio and 20% stake in BPER. This was the situation at the 30th of June. Today, we have 20% of BPER that owns more than 80% of Banca Popolare di Sondrio. This means that applying this rule of solvency, we have more concentration risk. But as a matter of fact, nothing changed compared to the situation at the 30th of June, but the simply fact that we have one only stake of a bigger bank brings to a higher concentration risk compared to the 30th of June. But the reality is that nothing changed. If something change is positive because we will take advantage of the synergy that hopefully BPER will do on Banca Popolare di Sondrio. But the application of the rule brings to a reduction of solvency of the insurance group to 265% that anyway is a very large number. Then Enrico on the expense. Enrico Pietro: So your question were about expense ratio and also combined ratio, and maybe we can also elaborate on this. Starting with the expense ratio. The main reason of the increase, if you compare the figure with the same figure of the same period of the last year is what we discussed in the last month. So it's about the incentive schemes for our agents that relate to the technical profitability, the amount of incentives we pay. It's something very important for us that align more than any competitor in the market our to the interest of our agents. And there are similar schemes, both in motor and non-motor. So what's happening both in motor and non-motor is since the scheme is related to how profitable is the portfolio of the agency. At the same time, what kind of growth they are delivering to us, since things are going really well, the amount of incentive we are calculating to pay is more relevant, especially because both of those schemes in motor and non-motor are related to a period of 2 years. So this year, we are considering the estimation of 2025 results and the actual results of 2024. Last year, we were considering 2024 that was a very good year and 2023 that was not a good year. So this change is generating the difference in expense ratio. For combined ratio, of course, we can elaborate a lot on this. The overall view is very positive. Everything is going according to our plan. We have a relevant improvement in motor business that is due to the fact that in motor third-party liability, action we took about pricing are working. Loss frequency is decreasing and the average cost of the claim is not suffering like last year, the spike related to the Milan Court Tables. And also, there is a significant improvement in motor outer damages result. Of course, the action in the strategic plan are working, but also the comparison with the previous year need to take into account the fact that we had at the beginning of 2024, a negative evolution of the claim reserve that in summer 2023, the hailstorms in 2023, we were not able to estimate it properly. So we had something negative in the first part of 2024. So basically, this is the situation in motor. We are viewing a market situation in which prices are increasing. The speed of this increase is lowering down in the market. The last figure that I think on the market, we can share is a 3.5% increase year-on-year. We did our increases before the market in 2023, and now we are increasing less than the market. And so this is favorable also for our market position. In non-motor, things are a little bit more complex. The overall attritional loss ratio on the direct business is improving, but this is offset by additional reinsurance cost, reinsurance cost that is due to the new aggregate scheme that protects us on nat cat event even more than before. And of course, the fact that when the direct business is so positive, you have very small recoveries from reinsurance. So this is the first point. The second point is we are more prudent in the prior reserve release than the year before. And this is quite relevant, accounts 1.5 points of combined ratio. And last but not least, what Matteo said about our prudence that we applied also to the nat cat provisions. And so the overall results is positive. The underlying trends are positive. And so we are even more than usual confident to deliver the results we put in our plan. Operator: The next question is from Michael Huttner of Berenberg. Michael Huttner: You've answered the questions. So I'm struggling to find a new, but I do have a few. The first one is on something that Fitch mentioned, and I think general also in the pre-close call, and apologies if I get it completely wrong because it's very new to me. It's the regional tax in Italy, the plan to raise this and how this will affect insurers and who will pay for it? Is it the policyholders, the companies? Beyond that, I know nothing except that there's a raise in some form of indirect product tax. And Fitch seem quite optimistic about this, but I don't know anything. So any indications on that would be super, super helpful. The second would be on more details on the lovely disclosure you've given us. So maybe can you give us a feel for when you say you've been prudent on the nat cat number, which is the same, right, 9 months '24, 9 months '25 is 6.1%. Can you help us think about how we could kind of judge this level of prudence? And then the last question is on motor, which is stunning, seriously stunning particularly since I know you're quite conservative anyway. So you're kind of -- you've achieved the planned target and pricing is still going up. I just wondered whether you can give us a little bit of a feel, a, for the own damage, which is clearly not a compulsory cover. So how come it's so successful? B, what will happen now that you have one less competitor in the market? AXA is buying one of your peers. And c, you discussed the frequency. And I'll give you the answers I've had on frequency from some of your peers. So Zurich said frequency is down, but they didn't give details. AXA said frequency is down due to -- because it didn't rain. So in other words, the cars didn't slide around. And yes, those are the only 2 indications I've had. Matteo Laterza: Okay. I try to answer to the first question concerning tax, then you did a lot of question on combined ratio, nat cat, motor, and I will leave Enrico to elaborate on that. I suppose that your question is regards to the discussion on the financial law, the budget law in our country. As you know, there is still a discussion. It is not a law. So we are in the process to understand which will be the final impact of the budget law on our numbers, of course, starting from 2026. At the moment, with the information that we have, we will have some impact that I don't consider meaningful and material for the delivery of our numbers and target of our industrial plan, above all considering the so-called ERAP increase that is in the proposal, the main component of the tax that will be in charge of insurance company going forward. But I have to say in general that, of course, we will have an impact in perpetuity. But as usual, we will apply the new law, and we did not change the target of our industrial plan because of that. Then I'll leave Enrico to answer to all the questions. Enrico Pietro: Michael, so a lot of questions. The first one, I hope to be able to remind every question. The first one was about the nat cat approach. So as you for sure know, for the Italian season of weather-related events was benign. But of course, we have to take into account the volatility of this kind of business line. And so this resulted in 1 percentage point -- additional percentage points related in non-motor combined ratio related -- compared to the previous year. that was also benign. So I -- more or less, I can give you this kind of size of the issue. So going on, on this, when we talk about motor, results are very good. We are now in a situation in which prices are still going up. The average cost of the claim is back to normal after the spike that we saw last year for the Milan Court Tables adoption. And so also the reserve release is back to normal. The probably -- you asked also something about motor outer damages. Yes, in which, as you mentioned, is not compulsory in Italy, is made of several cover, this kind of business line. And there are also here nat cat covers on hailstorms on cars, for instance, and other kind of covers, so theft, fire, CASCO and so on, we are improving. Our price action on the cover that need this kind of action are working well. And motor outer damage as far as CASCO is concerned, are not that big in our portfolio or in Italian motor portfolio. So basically, it's something that is not -- we are very careful to be good in pricing, but it's not very big as portfolio. Another question about the market is related, if I understood properly, about the acquisition of Prima.it by AXA. Of course, we still have to see what will happen in the future. But my personal view that it could be something positive for the market. And of course, we will have to wait. And if I don't remember badly, AXA announced that in the second half of 2026, they will become the carrier of Prima.it that, as you remember, is an MGA. So in the medium term, I see a positive evolution for the market and also for us of this kind of operation. And about frequency, yes, frequency is slightly decreasing. In our comparison that not -- there are not comparison related to the third quarter of the year. They are not so updated. But we have seen in the last period that our loss frequency is better than the market is improving a little better than the market. So of course, there is a factor that is external, of course, maybe raining, maybe the fact this is a long-term trend about the cars that have every year a little better technology to avoid or reduce the impact of a claim, customer behavior and so on. So there are long-term trends about frequency decreasing, and we think we are adding a little more about, of course, the pricing precision that is driving down loss frequency. We are at the end of a long period of decrease in the loss frequency. So you don't have to expect any other major reduction. But still, we are optimistic about this. I think we cover all the questions you asked. Operator: The next question is from Andrea Lisi of Equita. Andrea Lisi: The first one is on the amount you provisioned for the fund for the staff exit, EUR 80 million. What should we expect going on in the sense that should we expect other amount to be provisioned also in the next years? Or do you feel that with this EUR 80 million you have done for most of the idea that you have about staff reduction? The second question is on the net financial result in life that was quite high. If you can provide us some indication on this. And then if you just read in the newspapers, the platform that was launched with Confindustria in collaboration with Poste-Intesa, our nat cat policies for corporates. If you can provide some color on that and what are your expectations on this segment? Matteo Laterza: Thank you to you, Andrea. As you remember when we met in March for the industrial plan, we discussed about the early retirement solidarity fund. It is a part of our people and technology pillar of the industrial plan because we look forward to have a generational change in our HR component of our investment. And in doing it, we incentivate, of course, this change by applying an early retirement solidarity fund. So the answer is, yes, it will be repeated this number for the next couple of years because this is very important for us in order to accelerate the generational change in our company in order to acquire new skills in terms of the use of new technologies, and it is very important for the application and the implementation of the most important project that we are implementing in the company. So we don't consider any more this number as exceptional. I mentioned it because, of course, it hit the third quarter for this component. And you can expect the same for the next couple of years, at least. Concerning the net financial result in life, yes, as I said in the introduction, the finance department did a very good job overall, both in life and in non-life. In particular, in life, they did a lot of things in terms of change of asset allocation in order to accelerate the yield enhancement of the yield of the segregated portfolios or just [ UniSeparate ], where we succeeded to increase the yield by 12 basis points compared to the same number in September '24. And 12 basis points is a lot because you have to consider that we have almost EUR 40 billion assets under management, and it is a very important number. Of this 12 basis points, 8 was rebated to policyholder and 4 was kept by the company and used to remunerate the capital. And this is the most important contribution to the improvement of the net profitability of the health of the life business. On Confindustria, Enrico managed the project, and so I leave the floor to him. Enrico Pietro: Thank you, Andrea. So we signed a Confindustria agreement on Monday with the partnership also of Poste and Intesa Sanpaolo insurance companies. The innovation in this is that you can -- if you are a company that need to buy the cover that now is compulsory to do it also through the digital properties of Confindustria that can make you enter into our platform. And so this could be good thing to give an additional option to all the small companies, especially that need to comply with the new regulation by the end of the year. What we have seen so far is that the process is quite slow. So of course, large companies are well already covered for the vast majority. Medium-sized are, of course, complying. But as you know, in our country, we have more than 4 million small companies. And I personally do not expect that all the 4 million company will be covered by the end of the year, but this process will take time also in 2026 and maybe even more. Of course, it's an opportunity that we are also considering prudently about pricing, underwriting, geographical concentration that are something in our view, very important to be able to catch this opportunity without increasing the volatility of our results. Operator: The next question is from August Marcan of UBS. August Marcan: I have 2 quick ones. First on combined ratio and second on the investments. On the combined ratio, it seems like the PYD has gone up year-over-year quite a bit. Can you give some guidance what you consider would be a normalized level for your PYD and discounting? And then the second question, a bit more forward-looking on the investment. But since the start of your strategic plan, BTPs and other yields have been down, especially on the shorter term where your non-life business kind of sits. How confident are you in your yield targets? And can you talk a bit more about what levers can you pull to meet your yield targets that you set out in your strategic plan? Matteo Laterza: Thank you to you, I will start from the second question, then I will leave Enrico to answer to the first. Yes, the spread of BTPs versus Bond has consistently decreased. This explained in good part, the positive contribution of economic variance to the solvency ratio. On the other hand, we had also an upward -- smoothly upward trend in the base rate, both in the swap rate and also in the bond yield. And for us, it is very important, of course, the absolute level of the investment yield that remains for the BTPs way above -- whereabout of 3.5% in the 10-year maturity. And for the bond, we are in the area of 2.65%, 70%. That for us is fine. The average of the minimum guarantee in our life book is 70 basis points. And this level of risk-free rate or swap or bond, as you can define at 2.6% is fair enough to fit the minimum guarantee and the level of yield that we have to rebate to the -- our policyholder in order to offer them a decent level of yield for our clients. Of course, at 75 basis points of spread, Italian government bonds are not so cheap as they were when the spread was at hundreds of basis points that we had in the past. That gave us the opportunity to invest and to continue to invest and increase our weight in Italian government bonds. This is not the case today. We have an investment of EUR 17 billion in Italian government bonds. We look forward to maintain this investment going forward and to diversify the other -- in other assets like other European govies like Germany or also France can be an opportunity if there will be a prosecution of the widening of the spread there, we will get more diversification. And at the same time, we will be able to match the target of our industrial plan, where we are not worried at all. The absolute level of yield is more or less a little bit higher than where we were in -- at the beginning of the year when we launched and we discussed about our industrial plan. So there are nothing that worries us in this extent. And I leave Enrico answer to the -- on the combined ratio. Enrico Pietro: Yes. So the first part of the question was about the prior year development. And of course, you can see now an improvement compared to last year, but you have to take into consideration that last year was not a normal year, was a year in which the impact of the Milan Court Tables on permanent disability affected, of course, both the average cost of the claim of the current year, but also the prior year development. So basically, we are going back to normal. So this is a level you can expect maybe even slightly higher than this also for the future. And as far as the discount effect is concerned, of course, it depends on the interest rate environment. So now it is 2.3%. And of course, you can find also in the unwinding amount the same effect with the opposite sign in our accounts. Operator: The next question is a follow-up from Michael Huttner of Berenberg. Michael Huttner: I just wanted to understand, you spoke a little bit about a small rise in lapses still well below the market. Can you explain what is driving this, please? Matteo Laterza: No, Michael, this was to explain the negative contribution to the solvency of the so-called noneconomic variance. Noneconomic variance gave a negative contribution to solvency of 3 percentage points. This come from some change in assumption regarding what we -- what were the assumption at the beginning of the year in terms of surrender rate of life insurance business. And what we had in real numbers at the closing of September '25. Even if Unipol has a surrender rate that is way under the market average of our competitors compared to the assumption of the beginning of the year, the surrender rate was a little bit higher compared to our assumption. And this explains after the, of course, the update of the numbers in our capital model, we had 3 percentage points of decrease coming from what we call the noneconomic variance, but the justification and the explanation is what I said. I don't know if I was clear in the explanation now. Operator: [Operator Instructions] Gentlemen, there are no more questions registered at this time. Matteo Laterza: Okay. Thank you very much for participating to this call, and we will update in February for the final year results. Thank you very much to everyone. Operator: Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.
Operator: Good day, everyone, and welcome to Elutia Third Quarter 2025 Financial Results Call. [Operator Instructions] Please note, this conference is being recorded. Now it's my pleasure to turn the call over to Matt Steinberg, with FIN Partners. Please proceed. Matt Steinberg: Thank you, operator, and thank you all for participating in today's call. Earlier today, Elutia released financial results for the quarter ended September 30, 2025. A copy of the press release is available on the company's website. Before we begin, I would like to remind you that management will make statements during this call that include forward-looking statements within the meaning of the federal securities laws, which are pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that do not relate to matters of historical facts or relate to expectations or predictions of future events, results or performance, are forward-looking statements. All forward-looking statements, including, without limitation, those relating to our operating trends and future financial performance are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and descriptions of the risks and uncertainties associated with our business, please refer to the Risk Factors section of our public filings with the SEC, including Elutia's annual report on Form 10-K for the year ended December 31, 2024, accessible on the SEC's website at www.sec.gov. Such factors may be updated from time to time in Elutia's other filings with the SEC. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, November 6, 2025. Elutia disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements whether because of new information, future events or otherwise. Also during this presentation, we refer to gross margin, excluding intangible asset amortization, which is a non-GAAP financial measure. A reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measure is available on the company's financial results release for the third quarter ended September 30, 2025, which is accessible on the SEC's website and posted on the Investor page of the Elutia website at www.elutia.com. With that, I will turn the call over to Elutia's CEO, Randy Mills. C. Mills: Thank you very much, Matt, and welcome one and all to our third quarter 2025 conference call. I'm excited to be here with you today. Matt Ferguson, our Chief Financial Officer, is also with us today on this call. We're going to be going over a couple of things. One is the basics of evolution, a couple of things that I think everyone should know about the company. We're going to talk -- I'm going to spend a lot of time talking about where we're headed and not just where we're headed, but why we're going where we're going. Matt is going to give us an update on finance and litigation status. And then lastly, we'll close and take your questions. So let's get into it with some of the basics. So Elutia, we are a mission-based company. I think that's an important thing for investors to know. And I think that's a good thing, too, because we have a great mission. Our mission at Elutia is humanizing medicine so that patients can thrive without compromise. And today, we're going to talk a lot about breast reconstruction. And I hope that you can appreciate that our work in this space is so necessary because there's a patient population right now, women experiencing and making their way through their breast cancer journey who really are faced with a lot of compromise in their care and in their treatment, and that's holding them back from thriving. And we are applying our talents, our resources, our efforts and our mission to overcome that. So these women are able to thrive without compromise. I think it's really important for a company to know what they're good at, what are their strengths. And at Elutia, we are really great at combining biological matrices with powerful antibiotics that create this sustained antibiotic release in implants that's able to prevent infectious complications from happening. We started in this with EluPro, our first antibiotic eluting product that we got on the market and really did a great job in the initial commercialization with. We sold that, as you guys know, to Boston Scientific for $88 million. And now we're taking that technology into NXT-41x, which is our next-generation matrix for breast reconstruction. So if you're new to the story, and I see there are a lot of new callers on the call today, three sort of things that are probably worth keeping in mind. One is this is a validated technology platform. What do I mean by that? Well, we've already done it. We've already developed the first FDA-approved drug-eluting bioenvelope for pacemakers, which we sold to Boston Scientific. Now there, we're talking about a much smaller market, so only a $600 million market with a much smaller unmet medical need. We're talking about infection rates on the order of about 3%. We're taking that same technology platform, and we're moving it into a much bigger market with this blockbuster 41x that we have coming. So it's the same technology platform, but applied to the $1.5 billion breast reconstruction market. And as you're going to see coming up, there, we're talking about an unmet medical need where women are facing postoperative infection rates between 15% to 20%. And then lastly, the company is now fully resourced. We have the right team in place. We have a state-of-the-art GMP manufacturing facility, and we have a commercial platform already in place with our SimpliDerm product that we already have and we're already distributing in this space. And then very importantly, we now have the cash to fund the company, not only through product development and product approval, but all the way through commercialization of this technology as well. So let's get into it and let's talk about where we're headed and more importantly, why we're headed there. So why breast reconstruction? Why is breast reconstruction such a transformational opportunity for Elutia? Well, it's really the convergence of 3 factors that make this a very special opportunity for us. One, as I've mentioned, breast reconstruction is a large market, $1.5 billion market. But two, it's an unusual opportunity in that it's this large market that still has this really significant unmet medical need, postoperative infectious complications of 15% to 20%. Despite our best efforts in this for the last 30 or 40 years, we just haven't been able to crack this. And then lastly, our technology, our proven technology platform works in this space, and we're going to be able to solve this significant problem for these patients by applying our technology to this area. So let's go through these three different parts, right? Let's start with the large market. And I get out and I talk to a lot of different investors about this. I think this is actually one of the pieces of our story that most investors already appreciate. The breast reconstruction market is a really big market. It's an addressable market of about $1.5 billion. Why? There's 162,000 breast reconstructions performed in the United States annually. These are brand-new 2024 numbers from ASPS that are out. Biological meshes are already used in 90% of these reconstruction cases. So there's not like there's a market here that has to be retrained on how to use a biological mesh. And in fact, not only are biological mesh is the dominant modality -- treatment modality in these cases, they're also incredibly expensive. So we're talking about per breast on the order of $9,000 a breast for the biological matrix alone. And if you look at that as the percentage of implant spend, right? So you take the permanent breast implant, you take the expander that has to go in there and you take the biological matrix, you put all that together, the biological mesh is 65% of the implant spend. Here's the problem. The outcomes are abysmal. Despite the high cost, the status quo here isn't addressing the problem. Now I want to be really clear. I'm not suggesting the biological matrices causing the problem. I'm not suggesting the implants are causing the problem. I'm certainly not suggesting that the surgeons are causing this problem, but they're not fixing the problem. And what we're left with here is 1 in 3 women that go through breast reconstruction suffer a serious complication after that reconstruction fully, 15% to 20% of that is driven by infectious complications. We're talking about serious postoperative infections coming out of this case. And we are probably understating this problem in this case. Ultimately, we're looking at up to 21% of the implants end up being lost. The procedure ends up being a failure and has to be abandoned. That, as you can imagine, leads to this very significant economic burden that the hospital faces. We're looking at $48,000, the average economic cost to the hospital of an infected breast reconstruction. So here's a real significant problem. So like I said, when I go out and I tell the story, I think people appreciate that the breast reconstruction market is large. I think they even appreciate that -- hey, I believe you guys are going to get this approved. You did a pretty good job with that with EluPro. You got that there. You seem like you know what you're doing. They struggle to believe that this problem could be this bad in this big of a market for so long, and they really want to know sort of why -- how could that be? Why is that? And so I want to explain to you why this is the case. So here we go. So there are some very unique challenges that are presented by mastectomy. So in mastectomy, all of the breast tissue has to be removed, and this is done by the oncologic breast surgeon that comes in and it does the removal of the breast tissue. Why is this happening? This tissue has to come out because if any of it remains, then there is still a risk for breast cancer redeveloping in that woman. And then there needs to be further monitoring. There needs to be mammograms, right? So the whole purpose of having a mastectomy sort of goes out the window. And so the breast surgeon comes in here, and they're very aggressive with this removal, right? So they need to take out all of this breast tissue all the way to the margins of the skin, all the way down to the chest wall. The problem with that is, as you can see in this diagram here, is that the vasculature for the breast runs through this very tissue that all has to come out. Again, the vasculature of the breast runs through the tissue that has to come out. And so what happens is when you remove this tissue from the breast, you have to tie off these vessels that get cut, right? And so when you tie off these vessels, then you basically create an area of hypoperfusion, right, where you don't have adequate amounts of blood flow. What's the consequence of that? Well, the consequence of that is, generally speaking, the way we deal with and the way we prevent postoperative infection is by antibiotic therapy. We can give the patient oral antibiotics or we can give the patient IV antibiotics. But the idea is that you give these patients antibiotics and they circulate all through the body. and go to the parts of the body that you're looking to protect and prevent infection. But when you remove the blood supply, you also remove the route in which systemic antibiotic therapy needs to reach the surgical pocket. So no blood supply means no antibiotic therapy can reach where it needs. And there's lots of studies that show this. The plastic surgeons refer to postoperative antibiotic therapy often as voodoo. It makes everyone feel good that they're taking these antibiotics, but it does not prevent postoperative infection. And the reason why it doesn't prevent it is this very real anatomical challenge that's created. It also, by the way, if antibiotics can't get there because there's no blood, it also makes it for a real challenge for even the patient's own immune system to get there. And our natural cellular components of our immune system have a far more difficult time. So after we've done this procedure, we've done the mastectomy, now a plastic surgeon, this is a different surgeon now, a different surgeon and a different surgical team comes into the operating room to do the reconstruction of this area where they have this really thin skin. You have this pocket of tissue that doesn't have any vasculature. And now in there, they need to put an implant of some sort, either the permanent implant or oftentimes an expander. And then the other thing they'll also put in there is they'll put in surgical drains. And these are drains, if you've never seen them, these are literally plastic tubes that port directly to the outside and they allow excess fluid that normally would accumulate there to drain out of these spaces. And so you're adding this large foreign body and you're adding these drains that communicate with the outside and create a portal for contamination to enter. Then lastly, there's a mesh, right? And this mesh then goes around this entire construct to hold the implant in place and to create a bit of a barrier between the skin and the implant. And the reason that's done is because the skin here that's left after this radical mastectomy is so thin that you need something. And so that's what -- that's what meshes are used for in these types of procedures. And this is all done in a surgical procedure that's taking somewhere on the order of 4 to 6 to 8 hours in order to do. So if you wanted to create the perfect recipe for postoperative infection, it would be difficult to come up with a better recipe than the one we have here in breast reconstruction. You have long surgical times, 4 to 6 hours, multiple different surgical teams, creating an ischemic area in the body, right, that is hypoperfuse, doesn't have as much blood flow as it would need. On top of that, you put a large foreign body and then just for good measure, you throw a drain in that ports directly to the outside. So the question isn't how do we end up with postoperative infection rates of 15% to 20%. The question is, how is it not 100%? I mean it's almost miraculous that you could do this procedure and not have more infectious complication. And I think that actually is really a testament to the surgeons and the professionalism of the surgeons and the operating teams in this case because this is just almost the perfect storm for an infectious complication. But we think about this differently. We look at this and we say, what if we flip the script here? What if we turned things over? And instead of having those antibiotics delivered systemically and hoping some trickle into this avascular necrotic space, what if instead we delivered them locally. So what would happen in that case? Well, in that case, you would have local concentrations of antibiotic that were much higher, that were at therapeutic or even super therapeutic levels. And then just to boot, you would have systemic levels of antibiotic that were essentially indetectable. So you would have antibiotic exactly where you needed it, being very effective at preventing infection and you would completely avoid side effects that can come along with prolonged antibiotic and antimicrobial use. And so this is the fundamental basis behind what we do at Elutia, this idea of drug-eluting biologics and local antibiotic delivery. And this is what we did with EluPro, and it worked very successfully there. And it's what we're doing here with 41x. And the good news is we're not alone here. It's not like we thought of this and like, hey, aren't we brilliant and I wonder and I hope this works. Really resourceful inventive, creative plastic surgeons out there who are doing the best they can for their surgeons have already been looking into this. And they've actually already demonstrated proof of concept. And what they've discovered is that local antibiotic delivery in breast reconstruction works. It effectively, it statistically significantly reduces postoperative infection. Now the problem with it is they had to borrow techniques from orthopedic surgeons in order to pull this off. And there's just 2 different examples here. This first one on the left, these are PMMA plates, polymethyl methacrylate plates. Said differently, they are a place of cement, like a bone cement, hard, big rigid disks. And basically, what they do with these plates is they're able to mix this stuff up in the operating room. And while they're mixing it up, they'll mix in a powdered antibiotic into the aggregate and make that as part of this bone cement. And they will literally put this bony plate up into the breadth. Now the problem is not permanent, it's not absorbable. -- it deforms the rib cage. It's -- but you know what it does really effectively. It prevents postoperative infection. So decreased infection, this is a study with 360 patients, right? This decreased infection of about 62% from 12.6% to 4.8% p-value less than 0.01, really beautiful statistical data that shows that if you have local delivery of these antibiotics, that they will effectively address this postoperative computation. Another version of the same thing is instead of making a big disc, what happens if you made little ease out of it and sort of sprinkle them in there. And again, the same thing. Now this was a case -- or this was a study that was -- if you're wondering why the infection rates are so high. This is actually looking at salvage cases where the patients were already being brought back to the operating room for tissue necrosis. Now normally, what would happen is that procedure, the implant procedure would just be considered a failure. Here, they wanted to see if they could salvage these cases. And so they tried with and without this local antibiotic delivery. And again, a 35% postoperative infection rate dropped to 6.3% postoperative infection rate. This is a 75-patient study, p-value 0.017. So highly statistically significant. The point of all of this is if you deliver local antibiotics, it doesn't just conceptually work, it works in practice. And so that is why we created NXT-41x. But we did it in a way that the plastic surgeons are excited about using. And so Dr. Williams and her team has made a beautiful biological matrix. It's one of the things we're really good at doing that's purpose-built for plastic and reconstructive surgery. And then on to that, they've added powerful antibiotics, rifampin and minocycline. And they've done this in a way where they formulated it so they have a greater than 30-day release of these antibiotics that's putting therapeutic levels of antibiotics into the space for greater than 30 days. Why is this 30-day number so important? Because most drains come out by day 17. And so you want to make sure that once the portal is closed to the outside, that you still have antibiotic delivery going on and they're able to address infections. So this is NXT-41x. And that's the rationale why we came up with this. That's why it was so important for us to get EluPro done and commercialized and then ultimately, in the hands of Boston Scientific, who are going to knock the cover off the ball with that product. So we can move on and bring this product to market to the women who are going through breast cancer, who are battling breast cancer and so desperately need this technology. Let's talk a little bit about the plan and how we're going to get there. Right now, we have SimpliDerm, which is our biological matrix that doesn't have any antibiotics. This is very analogous to those of you who remember, our CanGaroo product that we had on the market, before we introduced EluPro, just the biological matrix by itself. So that's our SimpliDerm product. And what it enables us to do, just like CanGaroo enabled us to do is build out our commercial infrastructure, our sales team, our contracting team, the teams that work with the value analysis or the VAC committee, build out that whole infrastructure, so it's up and functioning and ready to go when NXT-41 comes to market, right? Second step, and you'll see this in the second half of next year, you'll see the first step is approval of NXT-41. Now what we're doing here, NXT-41 is NXT without the antibiotics. So if you think about the X is Rx prescription, right? So the NXT-41 is just the base matrix. We're doing that for regulatory purposes. We want to get just the matrix cleared through the FDA before we add the combination of the drug to be able to separate a combination device drug review into its component parts. And then the last piece you'll see in the first half of '27 is the approval of NXT-41x. Then lastly, before I turn the call over to Matt, just a little bit about what's going on inside the company and when we -- when we talk next about this, what I'll be providing updates, there are already three really essential work streams going on. Obviously, the most important one is the development. And we're looking for the development and approval of a highly differentiated product that significantly improves outcomes in plastic and reconstructive surgery, that is NXT-41. But alongside all of that is our manufacturing team that are building out this robust production platform that's able to achieve really, really significantly low cost of goods through our own proprietary in-house manufacturing process. We have this manufacturing facility in Gaithersburg, Maryland. If you're ever in the area, stop by, we'd love to give you a tour about it. But we have this really great facility and this really great team there that's building out this process that will enable us to produce this at a low cost of goods. And then lastly, the commercial team. The commercial team is working on SimpliDerm and doing a great job with SimpliDerm, but also building out the clinical advocacy and the commercial infrastructure that we need to have in place so that when 41x gets approved, we're able to do as good a job, if not a better job commercializing that product as we were able to do with EluPro. So that is what we're doing. That is why we're doing it and our plan in order to get from here to there. With that, I'll turn the call over to Matt, and he'll tell you about our operations. Matthew Ferguson: Okay. Thanks, Randy. And it's a very exciting time to be at Elutia and the future that Randy just described for everyone is really built on the great work that has been done over the past several years and the work that's been done more recently to build the foundation to make this future possible that we are also excited about. And so with that, I'm going to just take us back briefly to what Randy talked about at the very beginning of the call. And the big event for the third quarter of 2025, was the transaction of the sale of the bioennvelope business within Elutia to Boston Scientific. It was a sale for $88 million in cash, sold to a Tier 1 company that really put us through our paces digging under the covers, not just for the assets that they were acquiring, but really the whole company. And we came through that process very nicely with the technology and the company validated for work that had been going on really for years. So that transaction validates the technology platform that will be transformed in the coming quarters into NXT-41 and 41x and capture this big opportunity. And it also transforms our balance sheet importantly. And so it brings in a significant amount of cash and then it also streamlines our operations. So going forward, we'll be more nimble and we'll be more efficient and will be more productive. So the assets that were sold were the EluPro and CanGaroo products, along with that, our main operational facility within Roswell, Georgia that also went with the transaction. About half of the people in the company also went with that transaction. So that is going to make a big difference in our operating expense going forward and also should lead to improved bottom lines for the company. The transaction was announced in early September, but it didn't close until Q4, but it actually closed on the first day of Q4. So while the financial results, the balance sheet that we show as of the end of the quarter doesn't yet reflect the infusion of cash and the other associated payoff of debt and that sort of thing that occurred with the transaction, that happened just the day after the end of the quarter, and we'll talk a little bit more about that in a second. So from a financial point of view, when you look at our financials going forward, the business of the Bioennvelope division, that will now be shown just as a single line in discontinued operations. So starting with Q3 this quarter, we are no longer reporting on the sales and expenses associated with that part of the business, except in that one line, which is below our operating line at this point. So just moving forward, talking a little bit about the results for the quarter of the continuing operations, really breaks down into our 2 other product lines that are commercial right now, that's SimpliDerm and cardiovascular. SimpliDerm, we saw a nice uptick from the prior quarter in revenue. We generated $2.4 million of revenue, which was up about 18% from Q2 of this year. It was down, granted from a year ago, but there are a variety of factors that caused that over time. A lot of it, we believe, had to do with the contributions from the distribution partner that we've had over time. And I can say that we've actually now ended that relationship as of October, and we now have full control over that product line, and it is unencumbered from a strategic point of view. But just as important, we now have full operational control over it. As we rebuild the commercial footprint associated with that part of the business, it will do a couple of things. One, it will lead to renewed growth of that part of the business, but we'll also very importantly, lay the groundwork, which Randy talked about a little bit for the products, NXT-41, NXT-41x, which are sold into the same customer base and into the same types of procedures that SimpliDerm is sold into. So you can think of it a little bit similar to what we did with EluPro, where we had the CanGaroo product before we had the EluPro drug-eluting version of the product. Having that sales organization and commercial footprint for CanGaroo really allowed us to hit the ground running. And by the time that we were 3 quarters into our launch, we had ramped up to about an $18 million run rate with EluPro, and we think we can likely do even better when we have NXT-41 on the market. Moving on to cardiovascular. That also had a nice quarter, again, with the theme of us regaining control over the product completely. We returned to full operational control of that product after having a distribution partner there as well in the second quarter. And in May, we started selling that directly ourselves, and we generated in the third quarter, the first full quarter where we had only direct sales, we generated just a little under $1.9 million of sales with that. And that actually compares to both the prior year and the prior quarter quite nicely. It was up 68% from the prior year, up 28% sequentially. So we're doing nicely there. That product also has very high gross margin. So the more we sell there, the more it drops to our bottom line and funds the really strategic opportunities that we have in front of us. Moving on to a few other financial highlights in our statement of operations. Overall sales were $3.3 million, comprised of those 2 product lines that I just talked through compared to $3.6 million from a year ago quarter. The GAAP gross margin was 55.8% versus about 49% a year ago. So we've seen a nice uptick in our gross margin. There, again, we're actually benefiting from the margin profile of these products that we're now selling compared to the full portfolio that we had previously. And I think we'll see continued gains there. Our adjusted gross margin, which excludes noncash amortization expense, that was even better at about 64% versus 56% in the year ago quarter. And then also, we saw improvements both from an operating expense point of view and a loss from operations perspective. So we were at $7.1 million in overall operating expense, down from $11 million a year ago, and our loss from operations was $5.2 million versus about $9 million a year ago. All of that nets out to what was probably a more important metric when you back out the noncash items and nonrecurring items, our adjusted EBITDA was $2.7 -- adjusted EBITDA loss for the quarter was $2.7 million, and I think that's a pretty good indication of where we expect to be in the near future. From a balance sheet perspective, again, as I mentioned, the transaction had not closed yet by the end of the quarter. So we ended the quarter with $4.7 million in cash. But again, 1 day later, we closed the transaction that resulted in $80 million coming in at closing, $8 million in escrow and interest-bearing escrow account that we'll receive in 2026. That $80 million was then deployed to pay off about $28 million of debt. And then after paying off deal expenses and the like, we ended up with about $49 million of actual cash that came into our account in early October. That puts us in a great position as we move forward and think about our development plans going ahead. So we believe that gives us the runway to get us completely through the development and approval of NXT-41 and NXT-41x and the actual commercial launch of those products out in 2026 and 2027. Then finally, for people who've been watching the company for some time, you know that we have been working very diligently to put behind us some legacy litigation from a part of the company that we sold off a couple of years ago. That's generally referred to as the FiberCel litigation. I can report there that we were able to resolve another 7 of those cases in the quarter. And now when we started with 110 of those cases, we're now down to only 6 remaining. So I can say we are very, very close to putting that completely in the rearview mirror for us. We're very glad to have that almost behind us. And from a financial point of view, it's a relatively small number that those remaining 6 cases account for. The estimated liability of those is less than $1 million at about $700,000. So with those highlights, just before we take your questions, I would say, if you think about it from a big picture, why as an investor, would you own Elutia? Well, it goes back to the opportunity really that we've been talking about here for the last half hour or so. We like to say that it's a biotech-like upside with the risk profile and time line of med tech. So it's something that is very unique in the marketplace. We have a validated technology platform that physicians will adopt and that strategic will value. We have a derisked path to be first-in-class in a $1.5 billion market with a significant unmet medical need. And we have the team and the capital to get there without dilution. So with that, we'll take your questions. Operator: [Operator Instructions] It's from Frank Takkinen with Lake Street Capital Markets. Unknown Analyst: This is Nelson Cox on the line for Frank. Congrats on all the progress. It's exciting to see the story developing. You walked through it during the prepared remarks, but maybe just to go a little deeper, maybe walk through some of the learnings with EluPro from a development to approval to commercial rollout perspective. Just want to give you a chance to maybe dive into that a bit more and any learnings that will translate to NXT. C. Mills: Yes. Thanks, Nelson. So first, I would say the team is everything. And that goes to development, FDA approval and commercial rollout as well. The team is really everything here. And so with EluPro, we actually had a submission of EluPro that was put in actually before my time coming back into the company. And we got some comments back from the -- we got a lot of comments back from the FDA about that. And that led actually to us getting an NSC on that. But through that nonsubstantial equivalence process, I brought in Michelle Williams, who you guys know I've worked with for 21 years now. And I would say best Chief Scientific Officer in the business for these kinds of things. And she was able to really not just respond to the NSC, but also learn from it and develop our own intellectual property around it on not just delivery methods for local antibiotic delivery, but also around testing methods and how you prove it and how you demonstrate it to the FDA. And in doing so, develop a really good relationship with the agency, giving them not just barely enough information to feel comfortable with the submission and the clearance, but actually making them feel really confident that we've made a real quality product here. So I would say that is probably the single most important thing from a development standpoint that we learned. Commercially, what we learned was it is really good to have some commercial infrastructure in place. EluPro, by the time we sold EluPro to Boston Scientific, it was running at an $18 million run rate; 9 months in, I mean, that thing shot out of a canon. And that was because we had a commercial team in place. They had a great VAC package that, again, Michelle Williams and her team had helped put together. But we also had the commercial infrastructure and the contracting in place, and we knew how to do that. And so CanGaroo helped EluPro, and we think in the same way, SimpliDerm is going to help 41x when we get out there. So I think those are 2 things that come to mind. Unknown Analyst: Then maybe just running off of that, SimpliDerm obviously gives you a big commercial presence like you're talking about ahead of NXT. Can you just frame that a bit more for us and how you plan to leverage those already existing relationships. C. Mills: Yes. So we're talking about -- when we have SimpliDerm, right, we're talking about biological mesh that's used in the same surgical procedures. It's used by exactly the same surgeons in pretty much exactly the same way we expect NXT-41x to get used, right? So we're not talking about requiring the surgeons to do anything different from their current practice. It's one of the reasons that we just -- we really love -- we love this approach. All of it's already in place. They're already doing it. The problem they have is despite their best efforts, they're left with this postoperative complication rate. And so our plans with SimpliDerm is to just keep using that product to have this direct customer interaction that we have. Nobody between us. As Matt said, we now have full control back of our SimpliDerm product line. We go out and meet directly with the plastic and reconstructive surgeons. We talk with them about how SimpliDerm is going and their problems and how we can be helpful and how we can have them get better outcomes. And then obviously, just from a commercial infrastructure standpoint, our contracting teams and our commercial teams from a customer service and distribution, all that stuff is in place and ready to go, and we'll keep building on it, right? So we think about this coming year, not in any way as an idle year for our commercial team, but it's actually one where they're going to be active as hell going out there and continuing to expand this in just the same ways that we did with CanGaroo before the launch of EluPro. Every seed we planted there ended up being very, very valuable for the launch of that product. And we learned that lesson. And so that's what we're going to do with SimpliDerm. Unknown Analyst: Maybe just sneak one more in. How are you thinking about kind of clinical evidence and data generation with NXT? Do you envision kind of needing to invest there significantly to drive education and adoption? C. Mills: So through the combination 510(k) pathway, as you know, we actually don't have a requirement for clinical data for the approval process. Now we are a science-based company. We do really exceptional quality work, and we stand behind it. When we launched EluPro, we had no requirement for clinical data. But very quickly, we were able to put together, as part of our VAC package and as part of our marketing package, a complete story that made the implanting surgeons not just comfortable but enthusiastic about putting EluPro, and that worked really, really well. Well, we're doing the same thing here. And so preclinically, there is a tremendous amount of evidence that the team is building from things like pharmacokinetics, how long the antibiotics are there, the concentrations that they hang around in surgical sites from a preclinical efficacy standpoint. One of the things you can't do with patients is you can't go back into them a month after the product has been implanted and infuse them or inject them with large amounts of pathogenic bacteria. But we can do that in the preclinical setting with animal models and demonstrate like we did with EluPro that we're able to get complete kill even at 4 weeks out. But once the product, Nelson, comes to market, one, we don't think -- we know there's strong demand for this product now from the interactions that we have from the relationships that we have now, just the same way EluPro. There is a first wave of users that are ready to be done with putting cement into breasts in order to fix this problem and have a professionally built and constructed a product that fits in with their practice and they'll adopt right away. But we're not leaving it there. We're running clinical programs on these so that we generate conclusive data. Our goal here isn't to take significant market share. Our goal here is to flip the entire market so that women have much, much better outcomes than they currently do. The current standard of practice is not okay to leave the way it is. It needs to get better. And we know we'll have to generate clinical data to get all of that done, but that is our goal, all of it. Operator: Our next question is from the line of Ross Osborn with Cantor Fitzgerald. Junwoo Park: This is Matt Park on for Ross today. So I guess starting off with 41 and 41x. Can you just go back to any manufacturing plans you need to do ahead of time to -- I guess, like are there any validation steps needed to ensure a smooth transition from SimpliDerm to 41 and then to 41x? C. Mills: Great question, Matt. So to be really clear, where we manufacture 41, 41x is a completely different facility than we manufacture SimpliDerm. SimpliDerm is a human-derived product. It has a host of regulations associated with it because human-derived products can carry human pathogens with them. And so we keep those 2 things completely separate in completely separate facilities. So the facility where we're manufacturing 41 and 41x is a GMP facility. We were really, really lucky here. You might say we were beneficiaries of the GLP-1 boon that occurred in that we were able to get a space, a great GMP space that was already built out and ready to go from a company that was acquired by Novo Nordisk. And because of that, we were able to get it at really great prices. But most importantly, it was this really high-quality facility that was ready to go looking for somebody to manufacture something in it. So we're really pleased with that facility. There's all kinds of tech transfer and process qualification, equipment qualification that goes on when you bring up a manufacturing process. We have all of -- our teams there have a schedule for all of 2026. They're running through that process right now and are underway. We don't anticipate manufacturing will hold back or be the rate limiting factor in anything that we're doing here. And by the way, facility-wise, this is all done out of our new facility in Gaithersburg, Maryland. Junwoo Park: Maybe just one more on the cardiovascular business. Now that you've transitioned it back in-house, I guess, how should we think about the current run rate and the sustainability of growth from here? C. Mills: Yes, Matt. So we've been really pleased with the bounce back that we've seen now that we've been able to devote some more attention and some direct resources to that part of the business. That is not the future of the company by any means, but it's a great little business that has a pretty significant market out there and great gross margins and some really committed physicians out there that are using the products. And so we're basically back at the $1 million a quarter revenue level. And I think there's some growth that we can achieve from there. But it's not going to be a rocket ship. It's going to be steady growth, but we're also not having to invest money upfront in order to achieve that. We've got really an exclusively contract sales organization that's out there. So it's completely variable expense. And with the high gross margins over 80% that we've been achieving there, it -- a significant amount of the revenue that we generate actually drops to the bottom line. So that's in general, how I would think about the product there -- the product and the future trajectory there. Junwoo Park: Got it. Thanks again for taking the questions and congrats on progress. Operator: As I see no further questions in the queue, I will conclude the Q&A session and conference for today. Thank you all for participating. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the PAR Technology 2025 Third Quarter Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Chris Byrnes, Senior Vice President of IR and Business Development. Please go ahead. Chris Byrnes: Thank you, Elliot, and good afternoon, everyone. I'd like to thank you for joining us today for PAR Technologies 2025 Third Quarter Financial Results Call. Earlier today, we released our financial results. The earnings release is available on the Investor Relations page of our website at partech.com, where you can also find the Q3 financial presentation as well as in our related Form 8-K furnished to the SEC. During our call today, we will reference non-GAAP financial measures, which we believe to be useful to investors and exclude the impact of certain items. A description and timing of these items, along with a reconciliation of non-GAAP measures to the most comparable GAAP measures, can be found in our earnings release. I'd also like to remind participants that this conference call may include forward-looking statements that reflect management's expectations based on currently available data. However, actual results are subject to future events and uncertainties. The information on this conference call related to projections or other forward-looking statements may be relied upon and subject to the safe harbor statement included in our earnings release this afternoon and in our annual and quarterly filings with the SEC. Finally, I'd like to remind everyone that this call is being recorded, and it will be made available for replay via a link available on the Investor Relations section of our website. Joining me on the call today are PAR's CEO and President, Savneet Singh; and Brian Benard, PAR's Chief Financial Officer. I'd now like to turn the call over to Savneet for the formal remarks portion of the call, which will be followed by general Q&A. Savneet? Savneet Singh: Good afternoon, everyone, and thanks for joining us. Q3 was another strong quarter for PAR, one that shows the progress we're making on all fronts: growth, profitability, and cash generation. We delivered $119 million in revenue, up 23% year-over-year, driven by software subscription and hardware revenue growth. Our adjusted EBITDA came in at $5.8 million. This number includes $800,000 of accounting adjustments for non-period costs, which, when further backed out, brings our adjusted EBITDA to $6.6 million, continuing a nice march upward in EBITDA and cash flow. Our commitment to a flat cost base also played out. Non-GAAP OpEx was 44% of revenue, down from 60% just 18 months ago. This result was driven by our commitment to improving our operating leverage and our ability to begin to realize the operational savings being driven by AI utilization internally. Our ARR hit $298.4 million at the end of Q3, up 15% organically, reflecting steady execution across both sides of our platform. All told, ARR grew $12 million sequentially in Q3, and we expect that number to increase in Q4 to take us to our goals for the year. Now, to dig into our business performance in the third quarter. Q3 was another quarter of solid execution for Operator Cloud. ARR increased 31% year-over-year, including 14% organic growth. In Q3, we proved we can scale large enterprise deployments, innovate with AI, and keep customer satisfaction high, all while maintaining a disciplined focus on expense management and pursuing additional multiple large Tier 1 opportunities. Our POS business continues to perform exceptionally well. Our Burger King implementation cadence during the quarter accelerated dramatically with high efficiency, and we're pacing to meet Burger King's target for 2025, which then creates great visibility for 2026. Our OPS platform had a steady quarter as we ramped into Burger King and another large Tier 1 enterprise. The real story, though, in PAR OPS is the momentum in new launches and innovation. We brought Coach AI to market, an AI-driven assistant that allows operators to prompt operational questions in natural language and get immediate answers from their data. This innovation comes from combining delegate and data center product suites, and we see cross-sell and upsell possibilities across our wider base. We also launched AI chatbot support, helping users self-service faster and reduce support ticket volume, a meaningful productivity win. We expanded our international functionality and onboarded a Burger King franchisee in Canada across all sites, including French language functionality in Quebec, showcasing our ability to deliver for global customers. The PAR OPS operational groundwork and product expansion we put in place will pay off nicely in 2026 as we enter the year with a record backlog and customer commitments. Turning to TASK. As we mentioned last quarter, we pushed that rollout to next year in preparation for large RFP work. As we now move from RFP to actual development, our goal will be to maintain our launch schedule for next year with new customers while we begin our aggressive build schedule for this Tier 1 opportunity. That's a major validation of both product and team capability, and hopefully, we will have more to share publicly in time. What is crucial is that 2025 is proving to be the strongest bookings year in the history of the Operator Cloud segment, paving the way for years of sustained growth. On last quarter's call, I mentioned that we had $20 million in POS contract value that has not yet been rolled out. Our late-stage and weighted pipeline on PAR POS more than doubles this number again, ensuring a robust growth foundation for years to come. Now turning to the Engagement Cloud, which also had a strong Q3. Engagement Cloud ARR grew 16% from Q3 last year, including 15% organic growth. We continue to see real momentum and investment in digital engagement in the markets we serve, as brands look to connect more deeply with their guests. What's exciting is that, similar to last quarter, 70-plus percent of new deals signed in the quarter were multiproduct, including loyalty ordering intake, showing that customers increasingly see the value in the full engagement ecosystem, not just one solution, but the whole connected platform, a single cockpit to manage your entire digital business. We also saw renewals and upsells for Punchh with 3 major Tier 1 brands, proving that our long-term partnerships continue to grow stronger over time. On the innovation front, we launched new capabilities for the Engage for engagement in catering and games, both of which enhance the competitiveness of our solution and add real differentiation to our overall engagement platform. Moving to PAR Ordering. I'm encouraged to report that this is our biggest win quarter for PAR Ordering to date, highlighted by 6 new customer wins, all upsells and multiproduct deals, including a 400-plus location enterprise chain, a clear signal that our products are winning at scale. In the quarter, we were also able to sign 2 new customers that were previously using the largest online ordering provider in our space. We hope this creates a template to accelerate our growth in 2026, as PAR Ordering is not only a best-in-class platform now, but also an incredibly easy proof point of our Better Together thesis. Customers of Par ordering and Punchh, and POS can now update menus in one place, push changes to third-party delivery channels, and manage every aspect of their digital business from just one system. It's one of those few times in the enterprise software world where the demo just speaks for itself. Our solution for fuel and convenience stores, PAR retail, had a standout quarter, demonstrating what execution and innovation look like working together. In Q3, we hit key integration milestones and launched new features that are driving record engagement and customer success. We also added 4 new enterprise wins, including a successful Punchh to AT Retail migration in the quarter. It's important to note that, as we finalize the transitions from Punchh to PAR Retail, there's an opportunity for us to expand gross margins by taking out Punchh convenience store costs and taking up the price for moving customers to the more robust PAR retail platform. From a product perspective, we made Command Center smarter and more dynamic and introduced the messaging center and audience experts, making it easier for retailers to launch campaigns and analyze audience data in real time. And all of this hard work and achievement is working. Nearly every customer hit an all-time high in active program membership this quarter. So a great overall quarter for PAR Retail in which continues to lead in digital trade and engagement with strong customer results and clear momentum heading into 2026. A few summary thoughts here before turning it over to Brian for a deep dive on our numbers. I briefly mentioned this earlier, but this quarter marks a major milestone in PAR's journey to redefine restaurant technology with the launch of PAR AI, our new intelligence layer built natively across the PAR platform. The first product in the suite, Coach AI, is now live and already transforming how operators manage their business. PAR AI is different. It's built in, not bolted on. We've embedded AI intelligence directly into the operational workflow across POS, back office, loyalty, drive-through, and payments. This approach turns every PAR product into an active decision engine, creating a connected intelligent restaurant ecosystem, all pulling data from a clean pane of glass. Coach AI is our first step. It's an operational intelligence assistant that enables restaurant leaders to ask natural language questions and instantly surface live insights from POS, labor, and inventory data. No spreadsheets, no extra apps, no manual reporting. Importantly, it dramatically lowers the know-how required to be an operational expert, allowing more employees to engage with the product and, most importantly, saving brands hours of time. Early customers like Charter Foods have already eliminated the need for traditional BI tools and are realizing meaningful time savings and better decision-making. What's next? Later this year, we'll introduce a marketing intelligence assistant with the PAR engagement platform, enabling marketers to instantly analyze campaign performance, loyalty data, and customer engagement metrics in real time. Imagine being able to build, segment, launch, and execute a promotional campaign all within a prompt-like interface. This is more than a product launch. It's a strategic shift to an AI-native future. As I've said before, it's not about building tools. It's about owning the workflows so that AI is in the places where we as users are actually living. This new foundation will fuel capabilities like ROI ranked operational recommendations, voice-enabled ordering, and real-time audience targeting, all designed to make restaurant operations faster, smarter, and more adaptive. As Gen AI becomes embedded in the fabric of enterprise software, we believe the platform strategy is quickly emerging as the key to long-term value. It's not just about building tools anymore. It's about building AI native workflows. Companies that act as platforms, not point solutions, are in the best position to win. Why? Because they're integrated where work actually happens. That means deeper engagement, better data, and a natural fit for generative AI features that drive real, measurable impact. Moreover, by leveraging tooling and a tool set that you already understand, you lower the bar for training and adoption, a massive issue in today's early AI products. This is exactly where PAR shines. We don't just automate tasks. We connect entire workflows across departments. While point solutions to stuck in silos, PAR brings teams together, streamlining operations, and enabling collaboration at scale. For restaurants, this isn't a nice-to-have. It's the foundation for running a smarter, faster, and more agile business. We feel deeply passionate that AI makes PAR stronger because it brings the value of better together to life faster and improves the ROI of doing more with PAR. We believe it helps take a deeper moat and also pulls more of the ecosystem our way. Bryan will now walk through our numbers. Bryan? Bryan Menar: Thank you, Savneet, and good afternoon, everyone. In Q3, we continue to execute our plan of driving organic growth across our products and the verticals we serve while also driving profit and cash flow improvement, all while ensuring the company has the right resources to execute with excellence on our large Tier 1 opportunities. Subscription services continued to fuel organic growth and represented 63% of total Q3 revenue. The growth from higher-margin revenue streams resulted in a consolidated non-GAAP gross margin of $57.5 million, an increase of $7.4 million or 15% compared to Q3 prior year. We managed the growth while continuing to drive efficient leverage of our operating expenses. Now to the financial details. Total revenues were $119 million for Q3 2025, an increase of 23% compared to the same period in 2024. Driven by subscription service revenue growth of 25% and inclusive of 16% organic growth. Net loss from continuing operations for the third quarter of 2025 was $18 million, or $0.45 loss per share, compared to a net loss from continuing operations of $21 million, or $0.58 loss per share, reported for the same period in 2024. Non-GAAP net income for the third quarter of 2025 was $2.5 million or $0.06 earnings per share, an improvement of $5.6 million compared to a non-GAAP net loss of $3.1 million or $0.09 loss per share for the prior year. Adjusted EBITDA for the third quarter of 2025 was $5.8 million, an improvement of $3.4 million compared to the same period in 2024. Q3 adjusted EBITDA of $5.8 million included $0.8 million of accounting charges for non-period costs. Removing these non-period charges, adjusted EBITDA would have been $6.6 million and more indicative of our current normalized operating profit. Now for more details on revenue. Subscription service revenue was reported at $75 million, an increase of $15 million or 25% from the $60 million reported in the prior year, and represents 63% of total PAR Revenue. Organic subscription service revenue grew 16% compared to the prior year, when excluding revenue from our trailing 12-month acquisitions. ARR exiting the quarter was $298.4 million, an increase of 22% from last year's Q3, with Engagement Cloud up 16% and Operator Cloud up 31%. Total organic ARR was up 15% year-over-year. As stated in our Q2 earnings call, we expected incremental ARR growth to accelerate in the first half of the year to the second half. During Q3, incremental ARR increased $12 million versus $5 million in Q2 when excluding the GhostSkip asset acquisition, signaling the return to stronger growth momentum, which we expect to continue in Q4. Our growth is being driven by both site growth and increased ARPU, reflecting the successful execution of our Better Together thesis, which is driving both multiproduct deals and cross-selling into our existing customer base. Hardware revenue for the quarter was $30 million, an increase of $7 million or 32% from the $23 million reported in the prior year. The increase was driven by continued penetration of hardware attachment into our expanding software customer base and increased sales volume from customer demand that was pulled forward in advance of anticipated tariff impacts. Professional service revenue was reported at $14.5 million, relatively unchanged from the $14.2 million reported in the prior year. Now turning to margins. Gross margin was $49 million, an increase of $6 million or 14% from the $43 million reported in the prior year. The increase was driven by subscription services with gross margin dollars of $41 million, an increase of $8 million or 25% from the $33 million reported in the prior year. GAAP subscription service margin for the quarter was 55.3% and in line with the 55.3% reported in Q3 of the prior year. Excluding the amortization of intangible assets, stock-based compensation, and severance, the non-GAAP subscription service margin for Q3 2025 was 66.2% compared to 66.8% in Q3 2024. The modest year-over-year decline was driven by the impact of a fixed profit contract that we acquired from one of our 2024 acquisitions. Excluding this contract, which is not reflective of core operational performance, non-GAAP subscription service margin was over 70% for the quarter, an improvement of 150 basis points versus the prior year. This contract is up for renegotiation in 2027, and we expect that the renewal process will provide an opportunity to improve the underlying economics. Hardware margin for the quarter was 17.8% versus 25.5% in the prior year. The decrease in margin year-over-year was substantially driven by increased supply chain costs resulting from recently implemented U.S. tariff policies. The company began implementing pricing adjustments during the quarter to mitigate the impact of tariffs in future periods. We expect hardware margins to return to the mid-20% range moving forward. Professional service margin for the quarter was 17.6% compared to 29.2% reported in the prior year. The decrease in margin year-over-year was primarily driven by a reclass of non-period costs from R&D and incentives offered on SaaS implementations to facilitate adoption of the recurring subscription revenue streams. We expect professional service margins to return to the mid-20% range going forward. In regard to operating expenses, GAAP sales and marketing were $12.5 million, an increase of $2 million from the $10.5 million reported for the prior year. The increase was primarily driven by inorganic increases related to our acquisitions, while organic sales and marketing expenses increased by a modest $0.7 million year-over-year. GAAP G&A was $31.7 million, an increase of $4 million from the $27.4 million reported in the prior year. The increase was substantially driven by certain noncash or nonrecurring expenses, of which $3.5 million are non-GAAP adjustments, while organic G&A, excluding non-GAAP adjustments, remained flat year-over-year. GAAP R&D was $19 million, an increase of $1 million from the $18 million recorded in the prior year. The increase was entirely driven by inorganic expenses, while organic R&D expenses actually decreased $0.2 million year-over-year. Operating expenses, excluding non-GAAP adjustments, were $52 million, an increase of $4 million or 8% versus Q3 2024. But when excluding inorganic growth, operating expenses were flat year-over-year. Exiting Q3, non-GAAP OpEx as a percent of total revenue was 43.4%, a 590 basis point improvement from the 49.3% in Q3 of the prior year, demonstrating our ability to scale efficiently and drive operating leverage. Now, to provide information on the company's cash flow and balance sheet position. As of September 30, 2025, we had cash and cash equivalents of $92 million and short-term investments of $0.5 million. For the 9 months ended September 30, cash used in operating activities from continuing operations was $15 million versus $24 million for the prior year. Operating cash flow has steadily improved throughout the year as we continue to drive incremental profitability and reduce our net working capital needs. Q3 operating cash flow was positive, with the cash provided by operating activities of $8 million for the quarter. Cash used in investing activities was $11 million for the 9 months ended September 30, versus $178 million for the prior year. Investing activities included $4 million of net cash consideration in connection with the tuck-in asset acquisition of Go Skip, capital expenditures of $3 million for fixed assets, and capital expenditures of $4 million for developed technologies associated with our software platforms. Cash provided by financing activities was $12 million for the 9 months ended September 30, versus $279 million for the prior year. Financing activities primarily consisted of the net proceeds from the 2030 notes of $111 million, of which $94 million was utilized to repay the credit facility in full. To recap, following a slower first half, Q3 marked a pivot to meaningful growth and continued incremental profitability for the second half of 2025. This momentum is evident across key financial metrics, $12 million or 17% annualized sequential ARR growth. Non-GAAP subscription service gross margin percent improved 150 basis points from Q3 2024 when excluding the nonoperational impact of the aforementioned acquired fixed profit contract. Non-GAAP OpEx as a percent of total revenue improved 590 basis points from Q3 2024. Adjusted EBITDA improved $3.4 million from Q3 2024, and operating cash flows were a positive $8 million for the quarter. I will now turn the call back over to Savneet for closing remarks prior to moving to Q&A. Savneet Singh: Thanks, Bryan. In short, Q3 was a strong execution quarter, and we possess the scale, product, subscriber base, and financial strength to lead the enterprise foodservice technology category. What's in front of us is significant business opportunities with major Tier 1 deals, an aggressive acquisition strategy to deliver sustained additional inorganic growth, and a pointed AI product approach. Moreover, our growth into new large TAM industries continues to validate our PAR Advantage, and the investments we're making should bear fruit in years to come. In 2025, we're on track to deliver nearly $450 million in revenue, approximately 2/3 of which is recurring SaaS. We're also driving gross margin expansion, building a solid cross-sell and upsell motion, and seeing results across our global installed base of over 100,000 restaurants and retail stores. The long-term plan is for PAR to be the clear enterprise winner. First in restaurants, later with C-stores, and over time in the next vertical. Being the anned winner in this niche market creates a unique market dynamic that will warrant evaluation commensurate with others who've done similar work in different verticals. We are convinced that this foundation we have built has set PAR OPS to compete for and win the largest of Tier 1 restaurant technology deals in history. In the short run, our priorities remain clear. First, continue to grow ARR in the mid-teens organically or higher; second, execute on a unified better together product road map while building and commercializing new AI-driven functionality. Third, drive operating leverage and expand EBITDA. And fourth, close and announce large strategic Tier 1 deals to provide further visibility for long-term revenue growth. A critical aspect of our story now is revenue growth visibility. While especially operator cloud products rollouts can take time, given the in-store nature of the deployments, PAR has accrued a very sizable backlog, coupled with a late-stage Tier 1 pipeline. We have a very strong foundation to build off of. In other words, the short-run priorities I just mentioned are just our baseline. This is the minimum expectation I have of our team. Our mandate continues to be to leverage our existing business to pursue more aggressive, accretive, and creative M&A opportunities. This is a buyer's market, and PAR is a proven value creator. Multiples across our sectors have compressed dramatically, allowing for the potential for creative asset acquisitions. More importantly, though, we have the expertise and grid to actually pull it off. Our current flywheel of multiproduct deals expansion is great proof of this. During our time here, we have evolved from an unfocused, hardware-driven, and money-losing business with a singular software product to a profitable platform SaaS company bidding for and executing the biggest deals in the industry. This will absolutely happen again and again. We intend to further consolidate our existing markets while building out the PAR flywheel in new verticals. Our ambition is to be larger and faster, predicated on an ever-expanding better together platform. And this ambition is deeply rooted in every single member of our team. Thanks again for your time and your continued confidence in PAR. We're happy to take your questions. Operator? Operator: [Operator Instructions] Our first question comes from the line of Samad Samana of Jefferies. Samad Samana: It's good to see the progress both on the top line and on the expense side. So congrats on that. Maybe first, Savneet, just in thinking about the word record in terms of like the pipeline, I think it was described as a tipping point in some ways by Bryan for the business. So the tone is very, very positive. Can you maybe help me understand with a little bit more precision in terms of what changed between 2Q to 3Q that's giving you, I think, what seems like incremental confidence, particularly as you ended the call with that at least mid-teens growth outlook? And then I have a couple of follow-ups. Savneet Singh: I think we had similar confidence in Q2. It's just further visibility as we signed more deals that have given us a lot more visibility for Q4 and the rest of next year, and then further progress these larger Tier 1 deals, where now we see real visibility and hopefully a couple of them, it just gives us more confidence. I think we had similar confidence, but it's rising as we get more and more deals signed. I think the other part is that we rolled out a record amount of revenue this quarter, and our backlog filled back up. And so our backlog didn't come down, which means that we're signing at a faster rate than we're actually rolling out, which I think gives us more confidence again on the visibility in the out years. Samad Samana: And then you mentioned valuations coming down in the space. You mentioned M&A. And I know the company has made a lot of progress in digesting some of the M&A from years past. So just should we take that as a signal that now that you're far enough along in the digestion of TASK and Stuzo Holdings and some of the other assets that you would maybe think about firing that M&A muscle back up again? Or is that more of an opportunistic view? Just help us think through that last comment. Savneet Singh: It's opportunistic. What I meant by that is we're seeing -- obviously, our multiples compress, but what we're noticing is a lot of the assets we wanted to buy have compressed far more. And there are also unique opportunities to carve out assets and businesses that we like as well. And so we're going to be opportunistic. We're going to be super careful about using our shares. But we're seeing enough accretive deals where I wouldn't be surprised that we found something. There's nothing imminent or anything like that, but we feel pretty good about where we stand relative to the multiples we're seeing, some of the assets we've been tracking for many years. Samad Samana: Last question for me, and I'll turn it over. But just there's been, I'd say, some mixed performances out of certain pockets of maybe groups that aren't necessarily PAR customers, but that are representative of what's going on more broadly with consumers. And so I'm just curious if you have seen that it has any impact on customer decision-making, whether that makes it more imperative than ever to have the right technology in place, and/or if it's slowing down deal cycles, or if you're seeing both of it's netting out? Just how is some of the recent news or headlines on what's happening in restaurants translating into deal closures for you guys? Savneet Singh: Yes. Great question, Samad. So the first half of the year was painful for, I think, our category across the board. We saw a meaningful slowdown in traffic and sales for many of them. We saw it pick back up towards the second half of this quarter. But I'd say categorically, we haven't seen a slowdown in RFP activity. In fact, we have more RFP activity at scale than we had before. Where it impacted us in Q2 was that at the franchisee level, rollouts were slower because franchisees were waiting for business to stabilize. I think that's now reversing, and we're seeing really good momentum. But the macro question is a good one because I think what we continue to see is that as sales volatility exists in our category, the investments in technology seem to be increasing, not decreasing. So we're seeing more excitement around a lot of the AI tooling we have. And I think maybe most exciting for PAR, we absolutely see more interest in consolidating vendors. And we are one of the few players that have I'd argue, close to a full suite of products. And so I think that's giving us a little wind in our sales. Operator: Our next question comes from George Sutton of Craig-Hallum. George Sutton: Nice message, guys. So, specifically to TASK, you had mentioned that last quarter, you had put off some implementations because you were focused on the RFPs. I just want to make sure I understand what the updated message is relative to that. Savneet Singh: Yes. I think we continue with to same plan. We've got a lot of test business needs to get rolled out get rolled out in '26. And we're moving from RFP to actual development on a larger opportunity. And so it's critical for us to hold our commitments to our customers to get those deals out in '26 while also building for this large opportunity. George Sutton: Now, with respect to 2026, you made multiple points through your prepared comments that there were different things setting you up very well for 2026, AI, the BK rollout, the template for products, et cetera. Can you just give us a broader sense of what this ultimately means for '26? Savneet Singh: Not yet. We're going to give guidance on the next call. But I think maybe the biggest takeaway is we have a lot more visibility now than we've had in the past because of the backlog that we've signed. And as a result, I think we can get more precision as we get to the end of the year. And then I think the other part about it is the market, to the last question, part of what we're also learning is that the market likes our strategy. Every single car ordering deal was a multiproduct deal, including payments and loyalty. We're starting to see that the thesis that we put out there and now the product execution is caught up. And so that should give us the opportunity to take a lot more share next year. And that's kind of my wish is I hope it s up for success because we've been really impressed with what's happened in Q3 and what's happening in Q4. Operator: Our next question comes from Mayank Tandon of Needham. Mayank Tandon: Savneet, I'll just nitpick a little bit. You've been saying that you could grow ARR 20% organically for quite some time. I think you said that your target is mid-teens plus. Is there a change in the market? Or do you think this is just a function of the type of deals you're pursuing, which may take longer to land? Maybe that's a good thing long term, but maybe it slows down the revenue ramp. I'm just curious as to why the shift from 20% organic to mid-teens organic, if I heard your comments correctly. Savneet Singh: Yes. So last quarter, we said we're going to target mid-teens. And so I'm continuing that message here. When I was running through the priorities, it was our short-term priorities, which is continuing to hit at least that and hopefully more going forward. The major delta we're talking about is 2025, where our first half was slower than we wanted. And so I think it will be hard for us to get to that 20% for this year. And so I think there's an opportunity for us to do that to accelerate in '26 and '27 as the last caller I was talking about. But right now, I think we feel really comfortable with mid-teens opportunities to go higher. And given the whole momentum we have in AI and some of these larger deals, we'll see where that shakes out on our next call. But I guess, I think we feel really good where we are. And more than anything else, I think there's more opportunity for us to get back to where we were on this call than there was last call. Mayank Tandon: And then, if I could just ask more about the competition. Just listening to Toast and other players in the market, it seems like there's obviously a share shift going on from legacy to the more modern solutions like yours and Toast and other players in the market. I'm just curious, are you starting to see each other now because they're moving upmarket? I know not in the QSR space necessarily, but making some progress in your core enterprise space. I think you've had some opportunities down market. So I'm just wondering if you're starting to maybe see each other more often and what that means for the market overall? Savneet Singh: Not as much as you think. I mean, I think we have incredible respect for the team, the business, what they've built. And we've been competing in enterprise deals for years and years. I think at the large QSRs where we make our bread and butter, traditionally, it's still the same few folks as the incumbency, ourselves, and usually one of the other legacy providers. I think, and so today, I think if we surveyed our sales team, it would say the same all. We definitely see each other more in the smaller mid-market part of the world, where they are pushing aggressively. And so we do see each other there. But the large Tier 1s have unique dynamics when we see them. And obviously, I think we think, again, very highly of them, but we feel like we continue to expand our moat, and particularly this multiproduct dynamic, I think, is really going to help us going forward. Operator: [Operator Instructions] Our next question comes from the line of Charles Nabhan of Stephens. Charles Nabhan: I wanted to clarify your comments around moving from RFP to development. Specifically, I haven't seen any big announcements, but are you alluding to one of the super Tier 1s that you had been targeting and talking about over the past couple of quarters? Savneet Singh: We're generally in a market where the press release comes out quite a bit after we've won a deal, unless it's a renewal of an incumbent. So you generally won't see the press release, honestly, until well later if we won something. In regard to what I was talking about, all I'm suggesting is that we were in an RFP process and in the deal, and now we're starting to build. And then as we get details, we'll share them as we're allowed. Charles Nabhan: And as a follow-up, I feel like I have to ask the obligatory Fiserv question here. I know Clover is downmarket from you, and it's still early days. But there's obviously quite a bit of disruption going on in the payment space and negative sentiment around some of the fees that they've been charging. So with that said, do you see an opportunity to attach payments coming out of some of the disruption, the potential disruption in the payment market? Savneet Singh: Not really. In our market, payments are a much more transparent business than it is in the SMB side of the world. And so generally, when we win payment deals, it's in 1 of 2 ways. It's a hypertransparent package with the point of sale, where we can help bring down costs, hardware funding traditional ways that point-of-sale companies win deals, or it's through our online ordering business, which is starting to grow, where our Order and Pay module is really valuable to bundle in as a package deal. So that's when we see it. As far as the disruption that's happening down there, we just don't participate in that SMB space. So it hasn't really changed anything in our area. Operator: Our next call comes from Stephen Sheldon of William Blair. Stephen Sheldon: First one here, I just wanted to see if you could help us unpack sequential trends in Operator Cloud ARR. Great to hear that the BK rollout accelerated. But just given that, I'm also a little surprised that ARR there was up less than $3 million sequentially. So, any rough sense of how much of the Burger King contract ARR, when you think about the full deployment, would be included in the 3Q ending ARR number? And are there any offsets that you saw this quarter, such as churn in the broader operator base that weighed against sequential trends? Just anything to unpack the sequential ARR growth in the operator. Savneet Singh: No meaningful churn. I think the way to think about it is back-end weighted. The last month of the quarter was an excellent acceleration for us, and that continued into October. October was our best month. So it's more just the back-end weighted. And so that's why I think you hear Bryan's comments in mind, we feel like Q4 will potentially be a nice uptick. So it's just the back-end nature of the rollouts within the quarter. And no significant churn. Stephen Sheldon: And then on loyalty, I guess, can you just talk some more about the growth you're seeing there? It seems like loyalty is becoming a much bigger focal point with brands becoming a bigger factor in consumer decision. So, how much runway is there left for part to grow in loyalty as you think about location penetration, pricing increases, et cetera? And how different does that opportunity look now between restaurants and convenience stores, broader retail? Savneet Singh: Loyalty is a mandate. It was nice to have, and now I think we're witnessing that in times of sales slowdowns, traffic slowdowns, you really need a robust loyalty program to not just grow traffic and revenues, but also keep your margins high. And so it continues to impress us how much demand there is for that. We're earlier in that cycle for convenience than we are in restaurants. But even in restaurants, I think what it's leading to is that it's not just the loyalty that you had a few years ago. It's more upsell for a new product. It's a lot more opportunities to sell the AI initiatives I talked about. And so while our loyalty product probably won't double sites in the next year or 2, I think you'll see us continue to push up ARPU with the addition of new products, because I think early on, you had an all-encompassing loyalty product. I think in the future, it's going to be a bunch of modules that are built into that, that we can upsell and create a lot of value for the customers. Operator: Our next question comes from the line of Adam Wyden of ADW Capital. Adam Wyden: The first question is around M&A. I know you spoke about it, but obviously, your shares are down almost, I guess, 2/3 from where we were in November. I guess my question to you is, would this prospective M&A be accretive to your growth rate? And I mean, how do you think about doing M&A with your stock down 2/3? I mean, if I look at it on '27 or even '26, you're trading in the teens or whatever, it's 15, 16, 18, 20x EBITDA. I mean, how do you think about buying businesses while your profitability is inflecting because the '27 is on a revenue multiple basis, you're the cheapest you've ever been, and your profitability is inflecting. So I'm just curious how you think about doing M&A within that paradigm. Savneet Singh: Yes. On the call, I think it's twofold. So one, we won't do something that's not accretive. I think we've been very strict about that in everything we've done. And so what we're observing is that while our multiples compressed, we're seeing far more compression in some of the assets that we've been tracking for a very long time. And part of that is that we think there are some carve-out opportunities that we could leverage. And so I don't think you'll see us do anything close to a big deal. I don't think you'll see us dilute you and ourselves in any way; that's irresponsible. I think you'll see us find niche assets that we can use cash on the balance sheet, or if we use our shares, there's a large margin of safety for us to make it accretive. So I think it's just relative to what we're seeing in the market; we think we can create value. It's not going to be anything crazy, but it's enough where we think we can take up the growth rate of the collective PAR by taking a product and pushing it through our distribution system now. Adam Wyden: So anything that you buy would be accretive to your existing growth rate? Meaning, you think that will day 1 be a higher growth rate than PAR? Or you're saying, like, how do you think about the growth rate? I know that's been a challenge over the years, the last couple of deals, because it slowed down TASK for the big Tier 1. So I'm just curious how you think about adding things day 1 accretive versus. Savneet Singh: Yes. So historically, that's always been the goal. Day 1 is accretive, and then the opportunity to accelerate beyond that. So that's definitely what we want to try to accomplish. Adam Wyden: And then my second question is, you made a comment about something that was in development, I guess, RFP. Now, does that mean that you're -- because I know like you've been dancing around this whole Tier 1 thing. And clearly, you lost one today. And obviously, that restaurant chain is doing very poorly, and it's not crazy for them to renew something when their hair is on fire. So it doesn't particularly bother me. But when I think about the other Tier 1s, I think you mentioned 3, and it sounds like, at least based on our channel checks, there may be 4 I mean, how do you think about where you are -- I mean, are you basically saying you won one of the super Tier 1s basically because you're saying, well, we went from RFP to development. I mean, is that what you're saying? I mean, obviously, there's no press release because there's all the stuff about compliance, and everyone doesn't want to get hacked while they're doing it. But I mean, is it fair to assume that one of the super Tier 1s is basically signed and you're now in the process of rolling out? And can you comment about the other -- I guess, the other 2, and where you think you could be in that process? Savneet Singh: Unfortunately, I can't comment on any of that from my perspective. I think where we sit today, we've never felt more excited about the pipeline that's right in front of us, right here. And I think my comments touch on where we are in some of it. So, as we get information we can share publicly, I promise we will. We're not trying to be cagey, is a limited way to say. But today, we feel really good about the pipeline that's in front of us right now. Adam Wyden: So what does it mean to go from RFP to development? I mean, what does that mean exactly? Savneet Singh: Generally, the way our business works and it's not the same for everybody. After we win an RFP, we get to some form of development. Now it's not a guarantee by any means. You still have to do a lot of work from there, but it's generally a very good sign. Operator: Our next question comes from the line of Maxwell Michaelis of Lake Street Capital Markets. Unknown Analyst: I want to go back to your comments in the prepared remarks around PAR Ordering. It sounds like a pretty good quarter. Wondering if you could give some more information around that segment as well as it sounded like you won a customer with 400 locations. Savneet Singh: Yes. Listen, it's a tiny product for us today, but it's starting to really move for us. What I think is going to be interesting about it is we feel pretty good that not only can we start to continue to attach it to our loyalty wins, but we can also upsell it to our existing customers and hopefully pull in payments alongside it. So it's a really nice opportunity for us. As I mentioned, and you just suggested, we did win a 400-plus store chain. It was a takeaway from a market leader, so we felt great about that. And I think we're hopeful more of that comes. And more than anything else, I think it's just validation that the product is now at a point where we can argue it's best-in-class, and we can absolutely argue that if you have additional PAR products, you're going to get an experience and outcomes you could not get elsewhere. And that's what I meant by some of my comments, and if you see a demo of it and you work in our category, it is one of those things that it's, oh my gosh, I can't place somebody filing it that. Operator: [Operator Instructions] Our next question comes from the line of Anja Soderstrom of Sidoti. Anja Soderstrom: Just curious, and sorry if you covered this already, but in the hardware, what happened there? It seems like there was a nice upside surprise in the quarter. Savneet Singh: Are you referring to on the revenue and the margin? Anja Soderstrom: On the revenue. Savneet Singh: Sure. Sure, and thanks for the question. What happened was we had a pull-in. We were referring to this back in Q2. We started seeing orders come in in Q2, for hardware pulled in before the kind of tariffs were getting impacted by the pricing. And so that was the execution, a lot of those actual sales and orders that got in Q2 executed and revenue in Q3. Anja Soderstrom: And then you mentioned the margin was affected by the tariffs, but you're mitigating those, and do you expect them to normalize again in the fourth quarter or? Savneet Singh: Correct. So right, those orders came in in Q2, before we actually implemented the tariff price increase. And so then we've actually implemented that during Q3. So as sales orders kind of burn off into Q4, that will be offset. Anja Soderstrom: And also, you are marketing your offering better together. But how important is the data that you are generating for your customers in your value proposition? Savneet Singh: It's hugely valuable. I mean, I think that's why Better Together is working. As I mentioned, 70-plus percent of our engagement deals for the last couple of quarters are multiproduct. And I think a huge part of it is because if you pick our loyalty and online ordering, you've got one cockpit to manage your digital experience. So you can update menus in real time. You can import the POS menu and online ordering. You can push it to third-party delivery channels. You can have distinct availability, pricing, and menu on those channels. And so that's all data that we organize in a way that I think gives us a really unique competitive advantage. And that's why we've leaned so heavily into the AI side because I think the provider that has the platform, as I talked a lot about, also has the data, and I think we can make that data actionable. Anja Soderstrom: So your customers have real-time access to the data. Savneet Singh: Through Coach AI, they have access in real time to run reports so on and so forth. And again, I think a lot of what I'm observing is that you're lowering the bar to do work. Historically, think of your traditional BI tools, you're downloading reports, trying to figure out what the margin of this campaign we did, or when we should order this product. Today, you can prompt and say, "Hey, which store should I focus my time on today? Hey, what store creates a great template for me to fix this, or what labor schedule is working, or what labor module is working? You can now really, really engage. And so in the past, I think having a lot of data was almost wasteful because it just gave you too much information. Now we can help you be decision-oriented as opposed to just flooded with a lot of reports that confuse you. Operator: This concludes the question-and-answer session. I would now like to turn it back to Chris Byrnes for closing remarks. Chris Byrnes: Thank you, Elliot, and thank you to everyone for joining us today. We appreciate your time. We look forward to updating you in the further coming weeks. Have a nice evening. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the International Airlines Group Third Quarter 2025 Results Call. [Operator Instructions] I would like to remind all participants that this call is being recorded. I will now hand over to Luis Gallego, Chief Executive Officer, to open the presentation. Please go ahead. Luis Martín: Thank you very much. Good morning, everyone, and welcome to the IAG third quarter results. Today, I have with me Nicholas Cadbury, our CFO; as well as members of the IAG Management Committee. This has been another good quarter for IAG, and we are on track for another very good year. Our strong fundamentals underpin our best-in-class value creation over the long term. We are continuing to see robust demand for travel across the group. Our leading network and brands have helped to deliver a strong revenue performance in the quarter with PRASK broadly flat at constant currency against a record quarter last year. Our transformation initiatives are delivering effective cost control, supporting our competitive cost base on which we are delivering market-leading margins at 22% for the quarter and over 15% on a last 12 months basis. As Nicholas will show you, every single one of our airlines has reported a margin over 20% this quarter. This was also one of the best summers operationally that we have ever had, which is also supporting positive NPS performance. Our balance sheet continues to be strong, giving us optionality around our capital allocation, whether that is investing in the business at high rates of return or reducing our gross leverage as we take and encumber aircraft deliveries or as we increase our dividends, as we are doing with this set of results for our shareholders. And we intend to announce further returns of excess cash to shareholders at full year results in February. So for the short term, we are confirming that our outlook for this year is unchanged. And in the longer term, we are confident in our strategy to create value for our shareholders. And on that note, I will hand over to Nicholas to take you through the details for the quarter. Nicholas Cadbury: Thank you, Luis. Good morning, everyone. I'm pleased to announce another strong set of results. On the left, you can see the breakdown of the key drivers of the profit increase we've delivered in Q3. These are shown on a constant currency basis, with the impact of FX shown separately. We delivered a passenger revenue increase of EUR 177 million or 2% up. Cargo revenue decreased slightly as we cycled over the elevated yields in the Red Sea disruption in 2024, and other revenue continued to perform well, with the increase including higher IAG loyalty revenues, together with increased third-party revenues from Iberia's MRO business. As we guided, the performance of nonfuel costs continue to improve quarter-on-quarter, and the increase was partially offset by lower fuel prices. We split out the FX into a separate item, and you can see that we had an EUR 8 million overall headwind from FX and profit, with benefits from the weaker U.S. dollar more than offset by weaker sterling euro in the quarter. Overall, we increased profit by EUR 40 million on the record performance in Q3 last year. By OpCo, Iberia, Aer Lingus and Loyalty showed strong profit growth, whilst BA and Vueling profits were slightly down year-on-year. BA is shown in euros here, and so it was impacted by the depreciation of sterling against the euro, driving a larger reduction in euro terms than in sterling terms. Now let's look at the operating company's performance in more detail. Aer Lingus increased its operating profit by EUR 31 million to EUR 170 million, and its operating margins by 3 percentage points to 21.6% despite competitor capacity growth in Dublin. Q3's performance was driven by the expansion of its networks, particularly on the North Atlantic and the impact of the industrial action of approximately EUR 30 million in Q3 last year. British Airways saw its operating profits declined slightly by GBP 18 million, and its operating margins remain high at 20.2%. Unit revenues fell 1%, driven by the expected softer trading in U.S. sold North Atlantic economy leisure and by 7% capacity growth in European short haul. Nonfuel unit costs increased by 3%, driven by employee pay deals and resilient costs not being fully offset by the transformational benefits. Iberia continued to report strong results with operating profits increasing EUR 56 million to EUR 510 million, and its operating margin increasing 2.2% to 23.7%. Iberia also saw softness in the North Atlantic driven by competitive capacity into Madrid. However, it was fully more than offset by the continued strong demand in the South Atlantic routes. Nonfuel costs increased by 2.2% primarily due to resilience costs and higher ownership costs from the new aircraft. Vueling operating profit was EUR 20 million lower at EUR 272 million, but at a high operating margin of just over 25%. Good nonfuel unit cost performance was offset by a decline in unit revenue driven by slightly weaker demand, particularly in Benelux and Germany and the U.K. as well as the effect of investing and strengthening some of its core markets, which was not fully offset by the strong demand in other markets. IAG Loyalty reported GBP 141 million in operating profit, up GBP 16 million year-on-year at a margin of nearly 19%. Moving on to our revenue performance in more detail. Overall demand for travel continues to be strong, driven by demand for our network and our strong brands. The performance was in line with the guidance we gave in an outlook at the interims. We grew capacity by 2.4% with unit revenue declining by 2.4% and around 2 percentage points of which was due to currency movements, so only marginally down on underlying basis against a record quarter last year. If we look at the performance by region, North Atlantic capacity increased by 2.9% with unit revenue decreasing by 7.1%, it's really important to note that around half of this was due to currency headwinds from both weak U.S. dollar and sterling against the euro. The trends were similar to those we reported at the interim results. We continue to see some softness in U.S. point-of-sale economy leisure and an impact on our transfer flows of U.S. direct capacity growth into secondary markets in Europe. Premium demand held up well. South Atlantic continues to be the star performer in the network. Unit revenue increased 0.6% on a capacity increase of up 2.9%. Iberia's performance continues to be strong with the routes to Argentina continuing to perform well, along with routes to Venezuela, Ecuador and Colombia. Europe unit revenues decreased by 6% on a capacity increase of 2.4%. I've already mentioned weak demand for Vueling, weaker demand for Vueling and the additional capacity from British Airways. In addition, there are FX headwinds from the weak sterling euro, representing about 2 percentage points on unit revenue impact with Iberia and Aer Lingus performing better. To finish off, Asia Pacific performed well and Africa and the Middle East and South Africa, partly saw the impact of additional capacity to Saudi Arabia and South Africa. Just turning to Q4. So far, we are pleased with the revenue performance with passenger route revenue held positively year-on-year, including the North Atlantic. We did have a particularly good month -- good in-month booking in December last year following the elections, so we do have some tougher comparatives over the next few weeks. Despite this, we are confident about the long-haul market in particular. And while it's a bit further away, H1 is so far looking positively. Just to note, as you've seen the currency impact on PRASK in Q3 was minus 2%. In Q4, we currently see higher adverse FX on revenue of around 3.5 percentage points, most of which is usually the average sterling to euro rate, which was about EUR 1.2 last year. And this year, it looks like it will be around about EUR 1.15. Clearly, the majority of the translation FX impact on revenue is offset by a favorable impact on costs. I guided last quarter that the increase in our nonfuel unit costs this year will be weighted to the first half of the year, and I'm pleased that we're broadly flat in Q3 compared to plus 4.6 increase in Q2. This is a good performance overall and in line with our expectations. Currency benefited the unit costs by about 2%. Employee unit costs increased 2.9% due to agreed salary increases, which were only partially mitigated by productivity benefits for more punctual operations. Supply and cost inflation was more than offset by procurement-driven transformation initiatives, part of our wider transformation program. Ownership unit costs increased by 9% driven by investments in new aircraft products and IT. Fuel unit costs reduced by almost 11%, driven by lower commodity prices and the fuel consumption savings from the new generation aircraft we're investing in. We continue to expect nonfuel unit cost to increase around 3%, in line with the guidance I gave you at the last quarter. And likewise, on fuel, we continue to expect fuel costs to be around EUR 7.1 billion. This slide shows our financial results for the 9 months down to net profit. Operating profit increased by around 18%, and pre-exceptional profit after tax increased by approximately 20% to EUR 2.7 billion, which, in addition to a lower share count from our share buyback program drove a 27% increase in adjusted earnings per share. I'm pleased to report that our balance sheet continues to strengthen, gross leverage reduced to 1.9x, down from 2.6x at this time last year, driven by the regular maturity of our aircraft financing and paying down IAG bonds. Net debt was relatively flat year-on-year despite the shareholder returns and net leverage decreased to 0.8x due to the year-on-year profit improvement. We still plan to give approximately 2/3 of our expected 25 new aircraft deliveries unencumbered, and we still expect to spend approximately GBP 3.7 billion on CapEx this year. This is my final slide. I want to remind you about how we think about capital allocation, which is core to how we create long-term value for our shareholders. Our first priority is to make our balance sheet strength targeting net leverage below 1.8x through the cycle, which is a proxy for investment grade. Our second priority is to invest in the long-term strength of the business at high rates of return with a focus on rebuilding our fleet, improving our customer experience and enhancing our digital capabilities and advancing our sustainability agenda. We're, of course, committed to a sustainable dividend return, and I'm delighted to announce an interim dividend of EUR 220 million. This represents approximately 50% of the anticipated annual total dividend, and as with the earnings per share, the dividend per share will also benefit from the share count production. Furthermore, with the current GBP 1 billion share buyback program nearly completed, we intend to announce further returns of excess cash to shareholders at our full year 2025 results at the end of February. We are confident of the strong end to the year and feel that this is a more appropriate time for the Board to make the decision in line with pre-COVID practices. And on that positive note, I will now hand back to Luis. Luis Martín: Thank you very much, Nicholas. As usual, I would like to remind you of our strategy that focuses on 3 strategic imperatives. Firstly, our strong core. We are deploying our capacity in a disciplined focused way to leverage our market-leading positions. And we are building our brands by investing in new, more efficient aircraft and better cabins and services alongside more efficient operations. Secondly, we are building up our complementary capital-light businesses, in particular, IAG Loyalty. And thirdly, we have a robust financial and sustainability framework. We consistently executing these imperatives we can deliver and maintain targets that we think are both best-in-class and appropriate for our business through the cycle. As I mentioned earlier, we have now delivered a 15.2% margin over the last 12 months which is market-leading. Fundamentally, we believe that delivering earnings growth at these levels of margin and return on capital will create substantial value for our shareholders. As usual, there are a lot of things going on around the group, and we have highlighted a few initiatives on this slide. Our network strategy is to focus on our core markets with increasing scale in our tax, we offer our customers more choice of destinations and frequencies. We focus on delivering improvements to the customer journey in our aircraft and on the ground and through a combination of the human touch and digital innovation. A good example of this is our announcement yesterday that we are going to partner with the Starlink to provide high-speed connectivity in all of our airlines with the rollout likely starting early in 2026, and our punctuality, as a driver of both customer satisfaction and efficiency is amongst the best in the world, and in particular, has been excellent over the summer despite many external headwinds. On-time performance improved across all airlines with British Airways achieving the best OTP at Heathrow since 2012, up by 10 points year-on-year. And NPS also continues to improve around the group with Vueling NPS hitting a record high this summer. Finally, we are pleased to announce today that IAG Loyalty has signed a multiyear partnership extension with American Express. Moving on to our outlook, our expectations for the 2025 full year are unchanged. As Nicholas has explained, we are booked positively so far for Q4, including the North Atlantic, so we are on track to deliver another very good year of revenue and earnings growth, margin progression and strong shareholder returns. Demand for travel is strong and our fundamentals are proven. We have leading market positions, a great network, powerful brands and an attractive customer base. Through the transformation program, we are delivering the margins that we are reporting today. And we still have a significant number of initiatives to roll out gross revenue, costs and operations. So we believe that we can continue to deliver strong value creation for our shareholders through the cycle. So I will finish by summarizing those key elements of that business model and our long-term investment case, strong markets, strong execution and strong value creation. And on that note, we will turn the call over to Q&A. Operator: [Operator Instructions] Your first question comes from the line of Alex Irving of Bernstein. Alexander Irving: Two for me, please. We heard from -- first of all, we have some of your peers about a less peaky summer, but with the summer extending into Q4. Does that match your assessment? If so, is that a 2025 factor or a lasting change? And what does that mean for how you manage the business? Second, on the North Atlantic, we saw Alaska launch in Heathrow. Do they get that slot in your existing joint business? If so, why? And should we see that as a precursor potentially adding them into the business? Luis Martín: So for the Q4 and Q1, we currently have about 80% of the Q4 book. The overall revenue performance is good and the passenger revenue is held positively versus last year. And we need to take into consideration that last year was very strong with total PRASK up 3.1% in general and in North America was up 14%. So performance is different by region. We see improving trends in North Atlantic. And currently, revenue is quite positive. We see also a strong October and November in North Atlantic. South Atlantic, as we said in the presentation, continue to be strong. And in Europe, we continue seeing some softness in intra Europe. But with lately, we have seen improving. Rest of World is also positive. And what we can see for Q1 right now with revenues around 30% the levels of revenue that we have are also above last year. So in general, the trend that we see is positive. So Q3 was a little weaker. As we said North Atlantic point of sale, nonpremium and transfer traffic had an impact in that. But we see that the situation is improving since then. And about Alaska, maybe you want to comment, Sean. Sean Doyle: Yes. Look, I think Alaska a very important partner to American and BA and we have a very good connecting partnership over Seattle and to places in the West Coast where they've developed the network over recent years. It would be premature to talk about entry into any joint business, but we work with Alaska on a very constructive basis, and we would have helped them through the kind of slot process in advance next summer. Operator: Your next question comes from the line of James Hollins of BNP Paribas. James Hollins: One for Sean, please. Maybe if you could give us a quick update on the very sort of current news on the U.S. shutdown. And clearly, international flights are protected, but whether you might perceive there's a little bit of reticence on late bookings on your transatlantic network. And while you're on, maybe update on your BA digital transformation, I think we're getting into the upcoming? And then for Nicholas, full year cost, I -- let me put it this way, is there a good chance you beat the 3% guide, particularly with FX and obviously, the performance you've had so far? Or is there anything specific on costs in Q4 that would mean you don't beat 3%? Sean Doyle: Just on shutdown, I think it's early stages. But right now, we're not seeing any impact. And I think one thing I would say is, we have -- it's November. So there's lots of kind of ability to reaccommodate across networks if there is an impact. We flight to 27 points directly in the U.S., and we work with American closely and start selling over those networks. So I think right now, it's business as usual, and we're not seeing any effect. But I think our direct network out of London, if there is any marginal impact on connecting traffic, we'll have plenty of capacity to kind of reabsorb any rebooking that we need to do. In relation to digital transformation, yes, we are entering an exciting phase. About 50% of our bookings on dotcom now are going through what we call our new booking flow, and that's showing very encouraging results. We're happy with conversion. We're happy with the performance, and we're very happy with the CSAT. We'll begin to scale the number of bookings we put through that platform as we head in towards the December, January sale period. So the vast, vast majority of bookings heading into next summer will have come through that new booking flow. And we're in a position that we start rolling out the app phasing element of the digital transformation early in 2026. So yes, it's exciting, and we're very encouraged by what we're seeing. Nicholas Cadbury: Yes. Just on the cost side, James, we've got all the MC here. So thanks for putting them under a bit of pressure overall. We're sticking with our kind of 3% guidance at the moment. You can see FX is moving around quite a bit at the moment overall, but we think that's still -- we're holding on for that at the moment. But we're pleased with the progress we've made, particularly with supplier costs overall, particularly the kind of process improvements we're putting and the kind of procurement savings we're doing. So we're pleased with how that's going. Operator: Your next question comes from the line of Stephen Furlong of Davy. Stephen Furlong: Maybe for Luis, just talking about or thinking about into next year, even into next summer. I'm just thinking about the competitive environment, maybe you could talk -- maybe go through the regions again because I'm thinking about things like, let's say, in LatAm, is there any change? Obviously, you have Turkish investing in Air Europa. I don't know on the other side. In the U.S. or North Atlantic I'm thinking about like United or I think it's delta expanding a lot of capacity. And then for yourselves in terms of capacity, maybe you'd be able to grow a bit more at Heathrow, if there's a bit of an improvement with the trends, et cetera. So just talk about the competitive dynamics as you see over the next 12 months in general terms. Luis Martín: So I can't comment on the capacity that we see for the next quarters. We need to take into consideration that still the people they are working in the programs for summer next year. But what we see for example, for Q4 and first quarter of 2026, is that capacity from London Heathrow, North Atlantic, London Heathrow is going to decrease in comparison to previous year. So that's going to help. We see that the other hubs, the traffic with North Atlantic are going to be more difficult. So Dublin, for example, the people, they are adding a lot of capacity in winter that is not usual. So we see in the Q4, an increase of capacity of around 16% and in the first quarter, 15%. So we are going to have a very tough competitive environment there. Madrid North Atlantic, Q4, we are going to have an increase in capacity of around 5% and the first quarter, 10%. So it's true that Q3, the increase of capacity was higher and other people they are moving capacity from Madrid to other regions in Spain. If we look at Latin America, from London, we see a decrease in capacity in the last quarter and also in the first quarter. Madrid is going to have an increase of around 4% in the Q4 and around 7% in the Q1. So -- but even with this increasing capacity, we are seeing strong yields and strong load factors. And the intra Europe is different in the different subs that we have, Heathrow Europe is going to be almost flat. Madrid Europe is going to be around 7%, Barcelona Europe around 4%. And Dublin Europe, again, high increase of capacity of around 12% in the fourth quarter and 15% in the first quarter. So the competitive environment, North Atlantic, we see positive trend, it's true that others are adding capacity. But in the joint business, we keep our market share and also in number of premium seats we continue with a very good position. And the other topics that you said, for example, Turkey with Air Europa, I think is going to be an investment of 26% in the company. I suppose they will try to develop the business, but we don't see an impact of that in the short and medium term. I don't know if there was another question. Operator: Your next question comes from the line of Jaime Rowbotham of Deutsche Bank. Jaime Rowbotham: Two from me, please. First, almost certainly for Nicholas on buybacks. On Slide 11, you reiterate the plan to return cash to maintain leverage of 1.2x to 1.5x net debt to EBITDA. It's obvious question, but if we assume you're still at 0.8x by year-end, it would imply a quite staggering EUR 3 billion to EUR 5 billion of potential headroom. Is it as simple as that, Nicholas, and presumably, at the lower end of that range, you could leave some buffer for potential M&A opportunities like TAP? Second question is just really on short haul. Could you remind us what the plan is for Vueling next year? I think there were some clues there in what Luis said about capacity out of Barcelona. It seems like the short-haul environment is a little bit tougher for you. You talked about weaker demand, Benelux, Germany, U.K., not offsetting strength in other areas. So some comments, please, on short-haul outlook and the plan for Vueling. Nicholas Cadbury: Yes. So I'll just start with shareholder returns. So this year, we'll have returned by the time we get to the year-end, we returned GBP 1.2 billion of share buybacks and GBP 400 million of dividends over GBP 1.6 billion in total. We haven't quite finished the share buybacks, so we'll finish that over the next month or so overall. We've kind of held back kind of doing the next shareholder return to year-end. Just to get it back into a normal process. We did was an exceptional one that we did last year was because it was the beginning of the process, but we'll just get back into the normal swing of it. It's a normal year-end decision that we have overall. But hopefully, we've kind of said in our statement that we're confident in going to give you share -- further returns later on in the year overall. Just in terms of the kind of way we think about it, as you said, we've got that range of 1.2x to 1.5x net leverage below that overall. I think kind of right at the moment, we've got some increasing capital coming over the next few years. And as you say, the TAP, so we'll probably manage more towards the bottom end of that range rather than the top end of that range overall, but that still gives us kind of quite a lot of flexibility overall. We've had 1 or 2 analysts kind of saying that not giving shareholder buybacks for this quarter may show kind of lack of confidence in the kind of future trading, I think, kind of after the strong quarter we just had and the fact that we've just said that we're booked positively for the year-end as well and kind of confidence in our overall strategy, we kind of find that that's obviously a personal statement, but it's doesn't reflect the confidence we have in our own business. Luis Martín: About the short-haul and maybe Carolina can expand on the Vueling. But the Q3, the point-to-point traffic was okay. We suffered in the transfer traffic, as I said previously. In the Q4, what we see is that competition is high. In Q4, intra-Europe capacity is going to raise around close to 6%. But we have different performance in different countries. For example, there are markets that are working very well for us. We need also to take into consideration the impact of the FX in the Q4 that is going to be relevant. But maybe Carolina, if you can comment on Vueling. Carolina Martinoli: Sure. If we look at Q3, I think it's a mixed bag. There are different things. So some markets work very well, domestic worked very well for us. As Nicholas said before, we had some specific markets with a weak performance. Germany, U.K., Netherlands, Netherlands very linked to the tax situation there. But we have a very strong position in Barcelona, and we offer from there over 100 routes, it's a constrained airport, and we have 1/3 of domestic traffic. So we are very used to face strong competition, but we are positive about our ability to compete. If you look at our RASK, A good part of that is self dilution. So we have decided cautiously to invest in some markets, Canary is a good example. We have grown over 30% in Canary but we are already seeing the results of that investment. So although you are right, it's going to be very competitive, I think we have a good position to compete in our core markets. Operator: Your next question comes from the line of Savi Syth of Raymond James. Savanthi Syth: Maybe for Nicholas, I'm not looking for guidance or anything like that, but I was wondering if you could talk a little bit about as you look out to 2026 just across the kind of the main cost items. Just generally, what you are expecting in terms of inflation and anything, any kind of offsets or headwinds or tailwinds that we should think about? Nicholas Cadbury: Yes. We're not giving guidance for 2026 overall at the moment. I think all I'm going to say just on the cost base as well, we've given kind of clarity for the last kind of 2 quarters on this year, which we're confident delivering. We've just delivered a good quarter on the cost base overall. So that will be up about 3% year-on-year on nonfuel cost. I'm expecting kind of the transformation program and also with kind of some -- hopefully, some kind of easing inflation overall that, that kind of number should moderate into next year overall. Savanthi Syth: That's helpful. And if I may just also ask just on the demand side, if you could kind of give a little bit more color between just kind of corporate versus premium versus kind of maybe the economy leisure. Luis Martín: Yes. I think that if we look at the business traffic, year-to-date, we have volumes around in total at group level of around 70% of the volumes that we had in 2019 and revenues close to 87%, so situation is improving but slowly and with a very different performance in the different airlines. So for example, in British Airways 62%, 63%, 82% in revenue, in Iberia, close to 80% in volume and above 100% in revenue and in Aer Lingus close to 100% in volume and similar in revenue. So with this, we expect to finish 2025 with business revenue above what we had last year. If we look at the volumes in Q3, we saw a decline in comparison with last year. But what we see now in the Q4 is positive, for example, in British Airways, we are seeing now growth in North Atlantic, both U.K. and North Atlantic point of sale. So we think that this is going to help to that recovery. But in any case, as I said, in some way, we are in a stable situation and the improvements slowly. In any case, when the COVID started, we said that we were expecting to come back to levels of revenue of around 85% of the revenues we have in 2019, and we are above that. And the good news is that we are delivering these strong results with this percentage of business traffic. What it means that our model is very -- is working very well also with the premium leisure traffic. Operator: Your next question comes from the line of Harry Gowers of JPMorgan. Harry Gowers: Two questions, if I could. The first one, just if I could ask on your positively booked revenue comments for Q4, if you could maybe clarify how positively booked we're talking? And could we end up seeing RASK higher year-over-year for Q4 versus last year? And then the second question, I was just wondering if you could go into some color on the U.K. point of sale on transatlantic and also U.K. point of sale on short haul as well and if we're seeing any demand weakness or price sensitivity? Nicholas Cadbury: Yes. So just -- Harry, I'd love to give you more detail, but that's about as much as we can give you that it's booked positively overall. I mean, we're currently -- we've had a good October and November, particularly we've seen actually point of sale in North America being good on both sides, actually from U.K. and from the U.S. as well and actually the U.S. leisure point of sale in the last few weeks has been a bit better as well, which is good to see. The only thing we're just calling out is we had a particularly strong December last year across the Atlantic. After the Atlantic, it was a bit of kind of pent-up demand. And if we saw it very strong. So we're just about to enter those weeks, but we're feeling pretty positive about it overall. So I think that's all we can say overall. And ASK is going to be up about 2.3% in the quarter as well. Sean Doyle: Yes, just on the U.K. segments in terms of the booking profile, Q3, we were positive across both business and premium and non-premium leisure and Q4, it's a little bit more positive, but we don't commit to the specifics. So yes, we're seeing stable demand is the best way I would describe it, and that's relevant, I think it's prevalent in both Europe and/or our U.S. markets, as Nicholas said. Nicholas Cadbury: Does that answer your question, Harry? Harry Gowers: Yes. Operator: Next question comes from the line of Conor Dwyer of Citibank. Conor Dwyer: I'd like to come back a little bit to the buyback question. Nicholas, you obviously already talked a little bit about managing towards the lower end of that range of 1.2x to allow for some potential M&A, things like that. But obviously, that still implies basically you can pay out more than your free cash over the next few years. Is that really how we should be thinking about this? Or are there other things in there that might, let's say, move that leverage number away from that kind of level? And second question was actually on the Loyalty. So growing revenue by about 7%, obviously, that growth has been extremely high in recent years. I'm just kind of wondering, are you now kind of viewing that business as a bit more mature now? Should we be really kind of thinking that as a kind of mid-single-digit percentage growth business? Nicholas Cadbury: Just on the share buyback. I mean, we set out the guidelines on where we want to manage our balance sheet to overall. And I think when we did that, we kind of said the things that we'll be looking out for it's a forward-looking thing rather than a backwards necessarily. So we'll be looking forward to how does the outlook look. We're feeling pretty positive about that at the moment. We also looked at what M&As on the horizon, TAP maybe potentially overall. And there's also kind of CapEx, what's our CapEx commitments looking forward as well. Now CapEx, as we know, is about EUR 3.7 billion this year, next year, probably more about EUR 4 billion, but we know over the next few years after that, it starts to ramp up, and that's why we could be managing towards the bottom end of that and making sure we've got some good headroom and ready for that overall. Adam Daniels: On the loyalty side, just to come back on that specifically, yes, we are continuing to see -- if you look at the year-to-date performance because there are some specifics around promotions around particularly on issuance of the points. So if you look at it across the year, we're still seeing double-digit growth in terms of the currency that's being issued and there or thereabouts on usage of those points and how those points redeemed. So I think we're seeing a continued growth and the continued double-digit growth that we've seen over the previous years. Operator: Your next question comes from the line of Ruairi Cullinane of RBC Capital Markets. Ruairi Cullinane: First question on Cargo revenue decline. Should we expect similar dynamics in Q4, given another strong prior year comp? And then just sort of coming back to the unit revenues. Do you think North Atlantic trends you've seen is suggestive of the Liberation Day headwind, which may now be fading, given the improvement looking forward? Nicholas Cadbury: Yes. On Cargo, yes, you're right. I think we're seeing actually the supply, the demand for Cargo is still relatively good. And you can see that our weight we're carrying is still up overall. But we're just seeing some softness in yields. And as we said in the call, that's really based on the fact that we're anniversarying the high yields we had as there was a lot of disruption over the Red Sea last year overall. And that's just the supply chain around that is just kind of normalizing overall, and you'll see that probably into Q4 as well. North Atlantic, I'm not sure we can -- anything else we can really say about that overall. I mean, Liberation Day was in April, overall. Luis Martín: Yes, as we said in Q3, we were below what we expected. But since then, we see a recovery. And as Nicholas said before, we see an improving trend, which is strong October and November, and we are booked positively. So I think the effect of the Liberation Day is, by far away. Operator: Your next question comes from the line of Andrew Lobbenberg of Barclays. Andrew Lobbenberg: Can I ask 2 questions. One on what labor relations lie ahead? I think there are some at BA, but perhaps you can correct me on that and whether there are any elsewhere in the group? Second question, I'd quite like to hear your thoughts around the situation at Aena, where I mean, obviously, you want lower airport charge, I can imagine. But it appears that the airport companies becoming something of a political football in Spain, and its plans to develop the infrastructure are potentially being threatened. So where do you sit, obviously, you do want beautiful facilities for very low cost. But how do you think about your key partner providing infrastructure in Spain being such a political football? Luis Martín: So about the labor situation, I think we have closed the most important agreements at group level. We are still negotiating some places like Iberia, with the ground staff. Maybe, Marco, you can comment on that later. We have now a situation -- a difficult situation in Manchester, where, as you know, we have a strike and it's probable that we are going to continue with a strike. And in Aer Lingus, they need to negotiate agreements with different collectives and in Vueling also, some of the agreements they expire at the end of this year and they are negotiating. So maybe you can comment maybe, Lynne, the situation in Manchester. Lynne Embleton: Yes. The -- just about Manchester in context, first of all, it takes 2 aircraft in Manchester base applies transatlantic. We're mounting through the strike. We've been accommodating -- we are accommodating more than 90% of our customers in strike date so far. We reached agreement with United on 2 separate occasions, and they've got the recommended deal for their members, which the members rejected. So we've benchmarked there. We've been working through ACAS. I think the key thing here is we need to be cost competitive, Manchester needs to be able to perform financially, it needs to justify its asset allocation. We're part of a group where capital is constrained and distributed where returns can be made the most and I'm very conscious of that when we look into our industrial relation situations. Luis Martín: Okay. Maybe, Marco, you want to comment on the ground staff. Marco Sansavini: Yes. Indeed. In terms of the labor relations in Iberia last year, there was a major milestone that was achieved. It was to set the new collective agreement with our pilots that, as you know, is a system where we share the benefits of and the results of the company, not only linking the pay evolution and the one-off evolution and a payment to the EBIT results of the group, but also to the productivity of our staff to the NPS and the OTP, so the capability to deliver to our customers. And the same has been achieved this year with our cabin crews. And we're just starting now the process of opening the negotiation with our brand personnel, and we are confident that the same scheme and system, of course, with the nuances for the specific collectives can be applied also there. It's very beneficial also for the people. And one remark, as you know, we also introduced the possibility for people to buy shares and become shareholders. And more than 1,000 of our staff currently have subscribed to that. That is another element of sharing the benefits of the resource of the company. And maybe a comment in terms of the Aena situation. Of course, our strategic plans implied the necessity of an alignment with Aena, and we have a common view of bringing to the full potential of the Spanish both operating companies and infrastructure. Of course, that needs to be done at an affordable price, it's the same view that the group has with regard to the U.K. So and we are in close contact with Aena to ensure that, that will happen. Andrew Lobbenberg: Can I just check? Is everything done and dusted on CLAs at BA? Or are there any... Nicholas Cadbury: Yes. our collective agreements go to the end of '26 and mid- '27, so we concluded those over the last 18 months. Operator: Your next question comes from the line of Patrick Creuset of Goldman Sachs. Patrick Creuset: Just coming back to your comments on Q4 trading, please. When you say booked passenger revenue for Q4 is up year-on-year including on the Atlantic. Just double checking that, that is after the FX headwind that you flagged or is this constant currency? And then secondly, if we look at your ASK guide of 2.3% for the quarter, again, coming back to your comment on increasing passenger revenue overall, and that would imply RASK at least somewhere around flat year-on-year, consensus standing at minus 2% for the quarter. So is that a fair interpretation? And then on the basis of that, looking at consensus expectations of somewhere around EUR 5 billion -- just shy of EUR 5 billion of profit for the year. Do you sort of feel comfortable with that? Nicholas Cadbury: Just you're right. The guidance we've given on the positive booking includes the FX. So it's not in constant currency overall it takes account of the currency impact as well. I'm afraid I can't give you -- I'm not going to give you PRASK guidance for -- with North Atlantic for Q4 overall, exactly, I think we said we were positive overall. I mean that's taking account the ASK growth as well, but we've got positive momentum on that overall. And so the last question on consensus, yes, you're right, consensus is just under GBP 5 billion. And if we weren't happy with that, we would have to say something, and we're not saying anything. Operator: Your next question comes from the line of Muneeba Kayani of Bank of America. Muneeba Kayani: I just wanted to touch on this new Amex partnership extension. How should we be thinking about it in terms of impacting the loyalty, top line margins? And then just related to that, overall margins into next year, you're very much at the top end of your midterm guide. You talked about positively unit cost inflation being better next year, you're seeing good demand trends. Like how are you thinking about that margin into next year, please? Adam Daniels: Yes. Just starting on the Amex agreement. Yes, so we're very pleased that we've reached an agreement with a -- long-term agreement with American Express. That continues the good work that we've done previously in terms of that. That agreement includes the British Airways co-brand, the Membership Rewards business and the acceptance of Amex across the different airlines this time to include LEVEL as well. So we're delighted that we have this multi-year agreement, and that will help the loyalty business as we go through the next few years to have that agreement in place, and we look forward to working with Amex in the years to come. Nicholas Cadbury: Yes, just on guidance, we're not giving guidance next year, but I mean I think kind of with the dynamics that we're seeing, we still see strong demand for travel, we still see a constraint in supply of aircraft into the market next year. Overall, we've got our transformation program, which is both driving our own revenues and also the kind of costs under control, which I said should moderate overall. So if you put those dynamics together, there's no reason why we shouldn't be at the top end of our guidance and sustain there overall. Of course, it depends on where fuel is and inflation ends up overall. But I think we're feeling confident in that. Operator: Your next question comes from the line of Gerald Khoo of Panmure Liberum. Gerald Khoo: One, if I can. There's been a lot to talk about the sort of ongoing strength in premium leisure. I was just wondering whether you could give an indication as to the relative importance of premium leisure within the Premium cabin. I know you probably won't give an exact figure, but just something to give a rough indication of how important that is proportionately? And what -- in terms of that trend of growth, what could derail it? What could cause that premium leisure strength to reverse or soften? And certainly, I think there was some talk about strong short-haul capacity growth at British Airways. So I just wanted to kind of understand where that was and why that was done, please? Nicholas Cadbury: Yes. Just in kind of premium leisure, yes, we don't disclose the kind of precise mix we've got on premium leisure Premium seats. If you look at it, it's different by different airlines, of course, if you look at British Airways, we've got about 45% of our seats are Premium overall, but a significant part of that is leisure. We've got about 20% of our overall customers and corporate customers. And more of that when you look at SME businesses overall, but they're important part of our growth. And you can see that in terms of corporate customers overall, they're still down year-on-year, but actually that's been filled very successfully by the demand for leisure, particularly at the front end of the plane. So it still continues to be strong. In terms of derailing one of the concerns we had as you get up to the -- we're approaching the U.S. -- U.K. election, which feels like it could be targeted more at the -- our customers at the wealthier end of the line. So you would expect maybe some slowdown, but we're seeing the opposite of that at the moment as well. So the people have got money, they've got money at the moment. Sean Doyle: In terms of short-haul capacity, there's probably 2 dimensions driving it. One is we have been replacing A319s with A320s and 321s at Heathrow. So that's a chunk of gauge. We've also been reorienting the network to fly to probably more of the Southern European leisure markets, which gives us a stage of that effect, which increases ASKs. And we've been continuing to build back our Euroflyer businesses at Gatwick. So that's operating kind of 25, 26 aircraft, which is probably where it was back in 2017, '18. So there are kind of 3 drivers of that capacity increase. And we've had some gauge benefits as well at London City, where again, we're adding some ASKs, but again, primarily into longer sector leisure markets, which were robust over summer. Operator: Your next question comes from the line of James Goodall of Rothschild. James Goodall: So just firstly, following up on Muneeba's question on Amex. Has there been any changes in commercial terms with Amex as a result of the new agreement? And how should we think about the cash remuneration element going forward? And then secondly, just given the strong on-time performance in all entities in Q3. Can you quantify what the benefit was to both revenue and costs from lower disruption in the quarter, please? Nicholas Cadbury: Yes. I mean the Amex card, it's a commercial sensitive agreement, so we can't really give any details in terms of the specifics overall, both in terms of, kind of, be it margin and cash, I don't know if you want to add anything. Adam Daniels: No, I just have to say, I think that's right. But clearly, we're very happy with that agreement. It works for both our South American Express, and we're very pleased to have extended it for the long term. Luis Martín: And about disruption cost, in the case of BA this year, the costs were almost half, 45% less than the growth that we had last year. Operator: Your next question comes from the line of Jarrod Castle of UBS. Jarrod Castle: Two as well. It seems like the MRO business is doing pretty well. So if you could just give a little bit more color in terms of pipeline of work and what you're seeing there? And then just secondly, I mean, a lot of attention to Loyalty. And obviously, the changes happened, I think, it was April this year. Loyalty members, they're going to get their tier status. I would imagine sometime in March next year. Just interested, within the different tiers, gold, silver, bronze at BA, has the mix changed, i.e., or some of the gold members as a percent of total mix slipping down or some of the silver going up? And what are signings like into the loyalty program at the moment. So any color on how you see that evolving going into March? Luis Martín: Maybe, Marco, you want to comment on MRO, mainly the engine business. Marco Sansavini: Yes. The engine business is still cycling over the post-COVID phase. So indeed, as you say, is recuperating, you see that a lot of the non-airline revenue growth has been driven by the growth of maintenance. So it's coming back to pre-COVID levels of profitability, and we are currently in the phase of setting the stages of the next longer-term view of the strategic opportunities there. So I think we will come back in time on that. Sean Doyle: In relation to the club and the relaunch, I think it's performing as we would expect, I think the tier sizes are broadly tracking the way they were last year. But we are hearing anecdotes of people who are higher-value customers getting their tier quicker. So we don't expect to see so much movements in terms of tier sizes. But we do think that the club tiers will be rewarding our higher revenue customers more quickly and more fairly. Adam Daniels: Yes. And I think I'd add to that, just in terms of the club, you asked about where the numbers are, we are still seeing some good growth in terms of people joining the club, both in terms of BA Club and Iberian Club. Active members, so that's somebody who's done something in the last 12 months is up double digits. So we're seeing a lot of activity. And we're also starting to see, which we talked about last quarter, people increasingly using their holiday as a method of obtaining tier point. So that's another trend that we're seeing. Operator: Your next question comes from the line of Alex Paterson of Peel Hunt. Alexander Paterson: Yes. So just continuing that theme of holiday sales to BA club members. Has that really benefited the third quarter? And if I look ahead, your -- the number of ATOLS that you have paid for is flat year-on-year. So if I think about then where is the growth in IAG Loyalty going to come from? If it's not from the number of holidays? Is it -- are you going more upscale? Or is it the growth is going to come from more Avios issuance? Adam Daniels: Yes, thanks for that. Yes, in terms of club members, we are seeing more revenue coming from club members, that's up on where we were in terms of if you look at it year-to-date. And we are expecting that to continue. So -- and you're right in thinking that the quality of revenue that come from those members tends to be strong. And so that's definitely where we're seeing some of the growth. In terms of ATOLs, I've always said that ATOLs are bit of an art rather than a science. And so we certainly plan to grow the business into '26. And in Q3, we definitely saw that growth in a lot of areas, I would highlight Greece is probably the region that's had its strongest summer certainly for us. So yes, that growth continues. Operator: There are no further questions. I will now hand back to Luis Gallego for final remarks. Luis Martín: Okay. So thank you very much. Thank you very much, everybody, for being here today. As we said at the beginning, a strong set of results, positive trend in bookings for the third quarter and first quarter. So we continue -- we are going to continue executing our strategy that is delivering better results than average. Thank you very much.